This report fulfills the disclosure obligation pursuant to Section 7:5§ of
the Securities Market Act.
Report of the Board of Directors
and Financial Statements 2022
R epor t o f the B oar d o f Dir ect ors 1 J anua-
r y–31 December 2 0 2 1
In brief
MuniFin Group in 2022
In brief:
• 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) 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.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
• 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.
In brief
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Jan–Dec 2022 Jan–Dec 2021 Change, %
Net operating profit excluding unrealised fair value changes (EUR million)* 170 213 -20.0
Net operating profit (EUR million)* 215 240 -10.3
Net interest income (EUR million)* 241 280 -13.9
New long-term customer financing (EUR million)* 4,375 3,671 19.2
New long-term funding (EUR million)* 8,827 9,395 -6.0
31 Dec 2022 31 Dec 2021 Change, %
Long-term customer financing (EUR million)* 29,144 29,214 -0.2
Balance sheet total (EUR million) 47,736 46,360 3.0
CET1 capital (EUR million) 1,482 1,408 5.2
Tier 1 capital (EUR million) 1,482 1,756 -15.6
Total own funds (EUR million) 1,482 1,756 -15.6
CET1 capital ratio, % 97.6 95.0 2.7
Tier 1 capital ratio, % 97.6 118.4 -17.6
Total capital ratio, % 97.6 118.4 -17.6
Leverage ratio, % 11.6 12.8 -9.5
Return on equity (ROE), %* 9.9 10.7 -7.9
Cost-to-income ratio* 0.2 0.2 10.1
Personnel 175 164 6.7
* Alternative performance measure.
Key figures (Group)
The calculation formulas for
all key figures can be found on
pages 38–45. All figures
presented in the Report of the
Board of Directors are those
of MuniFin Group, unless
otherwise stated.
Key figures
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Liikevoitto ilman realisoitumattomia arvostuksia
0
40
80
120
160
200
240
20222021202020192018
190
190
186
186
197
197
213
213
170
170
0
5
10
15
20
25
30
35
20222021202020192018
23
23
25
25
28
28
29
29 29 29
0.0
20.0
40.0
60.0
80.0
100.0
120.0
20222021202020192018
66.3
66.3
83.1
83.1
104.3
104.3
95.0
95.0
97.697.6
0.0
1.0
2.0
3.0
4.0
5.0
6.0
20222021202020192018
3.2
3.2
3.5
3.5
5.2
5.2
3.7
3.7
4.4
4.4
Net operating profit excluding unrealised fair value changes, EUR million*
Long-term customer financing, EUR billion* New long-term customer financing, EUR billion*
CET1 capital ratio, %
* Alternative performance measure.
The calculation formulas for all key figures can be found on pages 38–45. All figures presented in the Report of the Board of Directors are those of MuniFin Group, unless otherwise stated.
Key figures
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Report of the Board of Directors
1 January–31 December 2022
R epor t o f the B oar d o f Dir ect ors
f or 20 2 2
6 Report of the Board of Directors for 2022
38 Note 1. Key figures
46 Note 2. Group’s capital adequacy position
55 Note 3. Parent Company’s capital adequacy position
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Operating environment in 2022
The outlook in world economy changed dramatically when
Russia invaded Ukraine in February 2022. The economic
sanctions imposed by Western countries and Russia’s
reaction to them reflected heavily on trade with Russia and
the price of both energy and raw materials. During the year,
cost pressures spread to consumer prices across the board
and further accelerated inflation, which had already started
picking up speed in the previous year. In many countries,
inflation reached its highest level in almost 40 years.
Confidence in the economy dimmed especially in Europe,
where countries had to rapidly reduce their dependence
on Russian fossil fuels. In addition to concerns related to
the availability of energy, the outlook in Europe was also
shadowed by security policy risks and the refugee crisis
brought on by the war.
Despite the rapidly rising cost of living, Finland’s economic
growth remained stronger than expected, especially in the
first half of the year. Lifted COVID restrictions, the release
of pent-up household demand and the gradual clearing of
supply chain bottlenecks all boosted GDP growth. Towards
the end of the year, however, diminishing consumer buying
power and rapid interest rate hikes began to cool off the
economy significantly.
Before the Russian invasion, central banks had been
underestimating the risks associated with persistent
inflation, so they did not start tightening their monetary policy
properly until in the spring and summer of 2022. Because the
monetary policy was tightened belatedly, it had to be done in
quick and long strides. The US Federal Reserve has raised its
key interest rate by more than four percentage points since
March 2022, taking it to a targeted range between 4.25% and
4.5%. The European Central Bank (ECB) waited until July to
start its interest rate hikes, but then raised its deposit facility
rate by 2.5 percentage points in the second half of 2022,
taking it from -0.5% to 2.0%. The ECB also tightened the
conditions of its targeted longer-term refinancing operations
(TLTRO) that provide financing to credit institutions.
The effects of Russia’s war against Ukraine hit the Finnish
economy slower than feared. Although Finland’s trade
balance sunk into deficit in the spring when Russian trade
dried up and the terms of trade weakened, domestic demand
still sustained positive growth. The employment situation
remained surprisingly strong throughout the year. In the
second half of the year, however, the surging cost of food,
energy and housing started to significantly erode consumers’
confidence and purchasing power. In the housing market,
prices and the number of sales both took a downward turn.
The persistent inflation and the sharp U-turn in monetary
policy set the tone in the interest rate markets in 2022.
The 12-month Euribor rate rose from the -0.5% of the
beginning of the year by almost 3.8 percentage points
to 3.3%. Long-term interest rates also saw a rapid rise.
Germany’s 10-year bond yield went up from -0.2% to 2.6%,
while Finland’s corresponding rate went from 0.1% to 3.1%.
Operating environment in 2022
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Effects of the health and social services
reform on MuniFin Group
On 1 January 2023, Finland’s long-prepared health and social
services reform became effective and the new wellbeing
services counties began their operations. The operative
work of the wellbeing services counties is being largely
funded by the central government, but the counties have
government authorisation to acquire long-term funding for
their investments. The counties can also independently seek
short-term funding.
In terms of financing, the legislation adopted in the summer
of 2021 allows MuniFin to continue to act as a lender and
counterparty to the loans and other liabilities that were
transferred to the counties at the start of 2023. These
totalled about four billion euros. MuniFin’s financing contracts
and other commitments were transferred automatically from
hospital districts and special care districts to the wellbeing
services counties on 1 January 2023, whereas the transfer
of financing contracts and other commitments from joint
municipal authorities and voluntary joint municipal authorities
for health and social services to the wellbeing services
counties required a separate decision whereby the counties
accepted these commitments.
The amendments to the Act on the Municipal Guarantee
Board passed by the Finnish Parliament in April 2022 allow
MuniFin to also finance new investments and other new
financing needs by the wellbeing services counties.
In January 2022, the Finnish Financial Supervisory Authority
(FIN-FSA) decided that like the central government and
municipalities, wellbeing services counties will also fall in the
zero-risk category in the capital adequacy regulation of credit
institutions. This decision simplifies the counties’ financing
arrangements because it means that government guarantees
are not required.
At this stage, wellbeing services counties are not liable
for the guarantees for MuniFin’s funding, because unlike
municipalities, wellbeing services counties are not members
of the Municipal Guarantee Board (MGB). For this reason, the
MGB has decided to set an annual limit to the amount of new
financing MuniFin can grant to wellbeing services counties.
In 2023, the MGB’s limit for MuniFin’s long-term loans to
wellbeing services counties is EUR 400 million. MuniFin
estimates the wellbeing services counties’ financing needs
and government-authorised borrowing powers in 2023 to be
considerably larger than the limit.
The MGB’s limit for MuniFin’s new short-term financing
to wellbeing services counties, i.e. commercial papers to
wellbeing services counties, is EUR 900 million in 2023.
In 2022, the limit for the short-term financing for wellbeing
services counties was also EUR 900 million.
The long-term financial effects of the health and social
services reform remain difficult to estimate. MuniFin’s
financing volumes will be affected by the wellbeing services
counties’ future level of investment, the limits set by the MGB
and the fact that the operating expenses of the wellbeing
services counties are covered from the central government’s
budget. In MuniFin’s current financing operations, lending
related to health and social services does not play such a role
that changes in it would have a material impact on the Group’s
financial position in the near future.
Effects of the health and social services reform on MuniFin Group
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Information on the Group results
CONSOLIDATED INCOME STATEMENT
(EUR million) 1–12/2022 1–12/2021 Change, %
Net interest income 241 280 -13.9
Other income 2 4 -48.8
Income excluding unrealised fair value changes 243 285 -14.5
Commission expenses -6 -5 9.1
Personnel expenses -19 -18 6.4
Other items in administrative expenses -19 -17 8.9
Depreciation and impairment on tangible and intangible assets -10 -16 -35.7
Other operating expenses -20 -16 27.0
Costs -73 -72 2.1
Credit loss and impairments on financial assets 0 0 <-100
Net operating profit excluding unrealised fair value changes 170 213 -20.0
Unrealised fair value changes 45 27 67.1
Net operating profit 215 240 -10.3
Income tax expense -43 -48 -10.5
Profit for the financial year 172 192 -10.2
The sum of individual results may differ from the displayed total due rounding.
Changes of more than 100% are shown as >100% or <-100%.
The Group’s net operating profit excluding unrealised fair
value changes
MuniFin Group’s core business operations remained
strong in 2022. The Group’s net operating profit excluding
unrealised fair value changes shrank by 20.0% and totalled
EUR 170 million (EUR 213 million). Income excluding
unrealised fair value changes was EUR 243 million
(EUR 285 million) and shrank by 14.5%.
In 2021, MuniFin decided to change the credit terms of
negative interest rates in its long-term customer loans,
enabled by the change in the banking regulation. This change
began to gradually lower customers’ loan expenses as of
October 2021. Non-recurring expenses from an IT project
terminated in 2022 have been recorded in the results of 2021
and 2022. The result for 2022 was weakened by the growth
in fees collected by authorities. The COVID pandemic and
Russia’s invasion of Ukraine only had a minor effect on the
results both in the reporting period and in the comparison
period. The increased market rate levels, as a result of
accelerated inflation, has a positive overall impact on the
Group’s net interest income.
Information on the Group results
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Net interest income totalled EUR 241 million (EUR 280 million)
in January–December 2022. Net interest income was
positively affected by growing business volumes and the
continued low cost of funding, as well as the positive effect
that rising market interest rates have had on interest income
through equity.
On 1 April, the Group redeemed its only AT1 capital loan
(EUR 350 million), included in its Tier 1 capital. The Group’s
net interest income does not recognise the interest expenses
of EUR 4 million (EUR 16 million) of the AT1 capital instrument
for the financial year 2022, as the capital loan is treated as an
equity instrument in the consolidated accounts. The interest
expenses of the capital loan are treated similarly to dividend
distribution; that is, as a decrease in retained earnings under
equity upon realisation of interest payment on an annual
basis.
Other income fell from the previous year to EUR 2 million
(EUR 4 million). Other income includes commission income,
net income from foreign exchange transactions, net income
on financial assets at fair value through other comprehensive
income, and other operating income. In addition, the turnover
of MuniFin’s subsidiary company, Financial Advisory Services
Inspira, is included in other income. At 0.9% (1.6%), other
income relative to income excluding unrealised fair value
changes forms only a minor part of the Group’s income.
The Group’s costs were EUR 73 million (EUR 72 million),
rising by 2.1% from the year before. Costs were negatively
affected by the discontinuation of a major IT project for a loan
lifecycle management system, which the Group launched
in late 2019. The project was terminated in spring 2022, and
a total of EUR 5 million (EUR 10.5 million) of non-recurring
expenses were recorded in depreciation and impairment
on tangible and intangible assets. The termination did not
have an effect on customer business. Expenses were also
increased by higher fees collected by authorities; especially
the higher contribution to the Single Resolution Fund, which
grew by 36.3% to EUR 9 million (EUR 7 million).
Commission expenses totalled EUR 6 million (EUR 5 million)
and consisted primarily of paid guarantee fees, custody fees
and funding programme update fees.
Administrative expenses reached EUR 37 million
(EUR 35 million) and grew by 7.6% (5.2%). Of this, personnel
expenses comprised EUR 19 million (EUR 18 million) and
other administrative expenses EUR 19 million (EUR 17 million).
Employee numbers grew during the financial year, and the
average number of employees in the Group was 172 (162).
Other items in administrative expenses grew by 8.9% (11.6%)
during the financial year. The growth is mainly due to the
increased costs of maintaining and developing information
systems. The improved COVID situation has also slightly
increased travelling expenses and other types of running
costs.
During the financial year, depreciation and impairment
of tangible and intangible assets reached EUR 10 million
(EUR 16 million). The termination of aforementioned IT
project was reflected in the amount of depreciation and
impairment, both in 2022 and 2021.
Other operating expenses increased by 27.0% (6.6%) to
EUR 20 million (EUR 16 million). Of these, fees collected
by authorities comprised EUR 12 million (EUR 9 million),
increasing by 26.6% (23.0%) from the comparison period.
The growth in fees was mainly due to the higher contribution
to the Single Resolution Fund as described above. These
fees excluded, other operating expenses totalled
EUR 8 million (EUR 6 million), growing by 27.6% (-10.3%).
Information on the Group results
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The amount of expected credit losses (ECL), calculated
according to IFRS 9, amounted to EUR 0.1 million
(EUR -0.1 million). MuniFin Group continued in 2022 its IT
and model development for the calculation of expected
credit losses and finished it during the second half of the
year. With the development, changes have been made to
the assessment criteria for significant increase in credit
risk (SICR), probability of default (PD) and loss given
default (LGD). Hence, there was no need for the additional
discretionary provision of EUR 0.9 million recognised at the
end of 2021 and increased in June 2022, and the Group’s
management decided to remove the provision at the end
of 2022. In addition, macro scenarios were updated at the
end of financial year to take into account forward-looking
information.
The Group’s overall credit risk position has remained low.
According to the management’s assessment, all receivables
from customers will be fully recovered. The receivables
are from Finnish municipalities, joint municipal authorities
or wellbeing services counties, or accompanied by a
securing municipal, joint municipal authority or wellbeing
services counties guarantee or a state deficiency guarantee
supplementing real estate collateral, and therefore no final
credit losses will arise. During the Group’s history of more
than 30 years, it has never recognised any final credit losses
in its customer financing.
At the end 2022, the Group had a total of EUR 4 million
(EUR 19 million) of guarantee receivables from public sector
entities due to customer insolvency, which is less than
0.01% (0.06%) of total customer exposure. Non-performing
exposures were EUR 7 million (EUR 128 million). The credit
risk of the liquidity portfolio has remained at a low level, its
average credit rating being AA+ (AA+). More information on
the credit risks of financial assets and other commitments
is available in Note 26 to the Consolidated Financial
Statements.
The Group’s profit and unrealised fair value changes
The Group’s net operating profit was EUR 215 million
(EUR 240 million). Unrealised fair value changes improved
the Group’s net operating profit by EUR 45 million
(EUR 27 million). In January–December, net income from
hedge accounting amounted to EUR 36 million
(EUR 5 million) and unrealised net income from securities
transactions to EUR 8 million (EUR 22 million).
The Group’s effective tax rate during the financial year was
20.0% (20.1%). Taxes in the consolidated income statement
amounted to EUR 43 million (EUR 48 million). After taxes,
the Group’s profit for the financial year was EUR 172 million
(EUR 192 million). The Group’s full-year return on equity
(ROE) was 9.9% (10.7%). Excluding unrealised fair value
changes, the ROE was 7.8% (9.6%).
The Group’s other comprehensive income includes
unrealised fair value changes of EUR -21 million (EUR
-3 million). During the financial year, the most significant
item affecting the other comprehensive income was the
cost-of-hedging, totalling EUR -15 million (EUR -3 million).
The net change in fair value due to changes in own credit risk
on financial liabilities designated at fair value through profit
or loss amounted EUR -0.2 million (EUR 0.4 million).
On the whole, unrealised fair value changes net of deferred
tax affected the Group’s equity by EUR 19 million
(EUR 19 million) and CET1 capital net of deferred tax in
capital adequacy by EUR 16 million (EUR 19 million).
The cumulative effect of unrealised fair value changes
on the Group’s own funds in capital adequacy calculations
was EUR 47 million (EUR 31 million).
Unrealised fair value changes reflect the temporary impact
of market conditions on the valuation levels of financial
instruments at the time of reporting. The value changes
may vary significantly from one reporting period to another,
causing volatility in profit, equity and own funds in capital
adequacy calculations. The effect on individual contracts will
be removed by the end of the contract period. In the financial
year, 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.
Information on the Group results
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
In accordance with its risk management principles, MuniFin
Group uses derivatives to financially hedge against interest
rate, exchange rate and other market and price risks.
Cash flows under agreements are hedged, but due to the
generally used valuation methods, changes in fair value
differ between the financial instrument and the respective
hedging derivative. Changes in the shape of the interest rate
curve and credit risk spreads in different currencies affect
the valuations, which cause the fair values of hedged assets
and liabilities and hedging instruments to behave in different
ways. In practice, the changes in valuations are not realised
on a cash basis because the Group primarily holds financial
instruments and their hedging derivatives almost always
until the maturity date. Changes in credit risk spreads are not
expected to be materialised as credit losses for the Group,
because the Group’s liquidity reserve has been invested in
instruments with low credit risk.
The Parent Company’s result
MuniFin’s net interest income at year-end was EUR 237
million (EUR 264 million), and its net operating profit
stood at EUR 211 million (EUR 223 million). The profit after
appropriations and taxes was EUR 138 million (EUR 137
million). In April 2022, MuniFin redeemed its AT1 capital loan
of face value at EUR 350 million included in Additional Tier 1
capital in capital adequacy calculation. The interest expenses
of this loan for 2022 totalled EUR 4 million (EUR 16 million). In
the Parent Company, the AT1 capital loan had been recorded
under the balance sheet item Subordinated liabilities.
Subsidiary Inspira
In 2022, the turnover of MuniFin’s subsidiary company,
Financial Advisory Services Inspira Ltd, was EUR 1.6 million
(EUR 1.7 million), and its net operating profit amounted to
EUR 0.0 million (EUR 0.1 million).
Information on the Group results
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Information on the Consolidated
Statement of Financial Position
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
(EUR million) 31 Dec 2022 31 Dec 2021 Change, %
Cash and balances with central banks 0 8,399 -100.0
Loans and advances to credit institutions 9,625 1,417 >100
Loans and advances to the public and public
sector entities 29,144 29,214 -0.2
Debt securities 4,787 4,841 -1.1
Derivative contracts 2,707 2,000 35.4
Other items included in the assets 1,473 489 >100
Total assets 47,736 46,360 3.0
Liabilities to credit institutions 2,333 2,801 -16.7
Liabilities to the public and public sector entities 2,530 3,325 -23.9
Debt securities issued 35,592 35,328 0.7
Derivative contracts 4,616 2,224 >100
Other items included in the liabilities 1,052 821 28.2
Total equity 1,614 1,862 -13.3
Total liabilities and equity 47,736 46,360 3.0
The sum of individual results may differ from the displayed total due rounding.
Changes of more than 100% are shown as >100% or <-100%.
MuniFin Group’s consolidated statement of financial position totalled EUR 47,736 million
(EUR 46,360 million) and saw a growth of 3.0% (5.3%). Loans and advances to
credit institutions increased substantially in 2022 because the central bank deposits
previously recorded under Cash and balances with central banks have been made as
overnight deposits since September 2022 and are now recorded under Loans and
advances to credit institutions. Loans and advances to the public and public sector
entities increased during the year, but their amount in the consolidated statement of
financial position decreased due to unrealised changes in fair value caused by the
rising interest rates. The increase in total assets was mainly due to fair value changes
in derivative contracts and cash collateral to central counterparties included in other
items. In liabilities, the largest change is due to fair value changes in derivative contracts.
At the end of 2022, the Group’s equity stood at EUR 1,614 million (EUR 1,862 million).
The comparison figure includes the AT1 capital loan of EUR 347 million, redeemed in
April 2022. With the AT1 capital loan redemption considered, the Group’s equity grew by
6.6%. The profit of the financial year increased the Group’s equity, but on the other hand,
fair value reserve of investments, own credit revaluation reserve and cost-of-hedging
reserve decreased it by EUR 17 million. In the consolidated accounts, interest expenses
amounting to EUR 13 million (EUR 13 million) net of deferred tax on the AT1 capital
instrument were deducted from the equity upon the realisation of the interest payment
in April, as were the dividends of EUR 40 million (EUR 20 million) for the 2021 financial
year, paid to MuniFin’s shareholders in April 2022.
The Parent Company’s balance sheet at the end of the year was EUR 47,736 million
(EUR 46,359 million).
Information on the Consolidated Statement of Financial Position
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Financing and other services for customers
MuniFin Group’s customers include municipalities, joint munic-
ipal authorities, wellbeing services counties, joint county au-
thorities for wellbeing services, corporate entities under their
control, and non-profit housing organisations and non-profit
housing projects nominated by the Housing Finance and
Development Centre of Finland (ARA). The Group is by far the
largest single provider of financing for its customer segment,
offering diverse financing services and extensive support in
investment planning and financial management.
When Russia attacked Ukraine in February 2022, the Group’s
customers faced an operating environment that was turbulent
in a whole new way, even compared to the exceptional
circumstances of the pandemic years. Characteristic of this
upended operating environment in terms of the economy were
accelerating inflation, rising interest rates and preparation for
the growing energy crisis.
Despite the general uncertainty, the Group’s business devel-
oped steadily. Even though the unstable situation made cus-
tomers more cautious in acquiring finance, the Group was
able to further solidify its market position among its custom-
er groups. In 2022, the demand for the Group’s services was
affected by Finland’s health and social services reform, which
was to be fully implemented in the beginning of 2023 and
required the Group’s customers to make preparations. Joint
municipal authorities and hospital districts prepared for future
investments by acquiring finance especially in early 2022. The
Group’s own operations were also marked by preparations for
the transfer of financing contracts and other commitments from
hospital districts, special care districts and voluntary joint mu-
nicipal authorities for health and social services to the well being
services counties. At the beginning of 2023, about four billion
euros’ worth of MuniFin’s loans and other commitments were
transferred to the wellbeing services counties.
In October, the European Commission approved a subsidised
loan and guarantee scheme that allows MuniFin to finance
Finnish municipal energy companies under the EU State Aid
Temporary Crisis Framework. This arrangement ensures the
continuity of municipal energy companies’ operations and
strengthens Finland’s security of supply, and financing under
the scheme can only be used towards collateral requirements
in the electricity derivatives market. MuniFin’s customers had
little demand for this type of financing during 2022. In Decem-
ber, the Commission authorised the continuation of this aid
scheme until the end of 2023, extending its scope to also cov-
er other financing needs arising from possible energy crisis sit-
uations in energy companies, such as higher liquidity require-
ments related to working capital financing and investments.
Long-term loan portfolio by customer type
31 Dec 2022, %
Housing corporations
Municipalities
Municipalities-controlled entities
Joint municipal authorities
10%
11%
31%
48%
Financing and other services for customers
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The amount of finance granted grew by 19.2% (-28.8%)
compared to the previous year. New long-term customer
financing totalled EUR 4,375 million (EUR 3,671 million), of
which EUR 4,074 million (EUR 3,275 million) consisted of
loans and EUR 301 million (EUR 395 million) of leased assets.
Long-term customer financing at year-end amounted to EUR
29,144 million (EUR 29,214 million), of which long-term loan
portfolio totalled EUR 27,841 million (EUR 27,880 million) and
leased assets EUR 1,303 million (EUR 1,334 million). Long-term
customer financing (loans and leased assets) excluding
unrealised fair value changes was at the end of December
EUR 30,660 million (EUR 29,063 million), and it grew by 5.5%
(5.6%). Short-term customer financing (commercial papers
to municipalities and municipal companies) totalled EUR 1,457
million (EUR 1,089 million) at the end of 2022.
MuniFin’s subsidiary company Inspira specialises in financial
advisory services for the municipal sector. In 2022, Inspira’s
turnover was EUR 1.6 million (EUR 1.7 million). The most popular
services were services that help analyse the financial effects
of the health and social services reform as well as services for
planning the finances and investments of the new wellbeing
services counties.
Partner in building sustainable finance solutions
MuniFin Group’s vision is to be the best financing partner
for its customers. In 2022, the Group continued to invest in
developing its service processes and offering even more
extensive sustainable solutions for its customers. The Group
started to provide short-term customer financing in the form of
commercial papers to municipalities and municipal companies
on a real-time digital service platform in the spring and piloted
the platform to also include long-term financing in the second
half of the year. The digital service makes the process easier
for customers and increases the transparency of pricing.
MuniFin Group supports and encourages its customers
to manage their finances in a sustainable way and to make
sustainable investment decisions. Through its advisory
services, MuniFin’s subsidiary company Inspira assists
municipalities and wellbeing services counties in analysing
their finances, planning their investments and reorganising
their holdings or service production, for example. The Group
also offers training for its digital services and economic reports
to support decision-making.
The Group offers its customers green and social finance
for their sustainable investments. Green finance is aimed at
environmentally friendly investments that produce clear and
measurable environmental benefits, whereas social finance is
aimed at investments that produce widespread social benefits.
The demand for the Group’s sustainable finance products was
strong in 2022, especially for green finance. The Group updat-
ed its Green Bond Framework, which sets the criteria for fi-
nance granting, project evaluation and reporting. Thanks to the
updates, the evaluation criteria are now more transparent and
ambitious, and the evaluation process is more straightforward.
At the end of 2022, the Group’s long-term customer financing
portfolio included 246 green and 76 social projects. 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.. The impacts of sustainable finance
are discussed in more detail in the Green and Social Impact
Reports separate from this Report of the Board of Directors
and Financial Statements.
The Group uses green and social finance to encourage its
customers to make environmentally and socially sustainable
investments. A margin discount is granted for eligible projects,
which encourages customers to assess the impacts of their
investments more extensively and make choices that are more
sustainable for the environment and society.
In 2022, the Group organised an event series entitled ‘Climate
& municipalities’, sharing practical experiences and examples
of climate investments by municipalities and housing sector
organisations. The Group was also preparing for an ESG
application, which enables municipal sector customers to
monitor and compare their ESG indicators.
The Group continued the work to measure the emissions of
both its own operations and the projects that it finances in
2022. The goal of this work is to systematically reduce the
Group’s own carbon footprint, offer customers more support
with emission reductions and better manage the climate and
environmental risks related to the Group’s operations. The
Group also invested in improving the assessment of the ESG
risks related to its operations and customers.
Financing and other services for customers
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Funding and liquidity management
MuniFin Group’s funding strategy is to diversify its funding
sources to ensure access to funding under all market
conditions. This long-standing strategy has proved highly
successful during the upheaval of monetary and security
policies: the Group had strong access to capital markets
throughout the year, and the average cost of funding
remained at a low level.
MuniFin Group acquires its funding primarily from the
international capital markets as standardised issuances
under debt programmes. The Group issued three benchmark
bonds in 2022: two denominated in euros and one in US
dollars. All three were met with strong demand. The Group
also made several increases to previously issued bonds. In
addition to the strategic benchmark bonds, the Group also
conducted a variety of other funding operations on account
of the increased market volatility. The Group was particularly
active in the markets for pounds sterling and Norwegian
krone but reduced its funding volume in the Japanese
Uridashi market.
In 2022, new long-term funding was EUR 8,827 million (EUR
9,395 million). A total of 180 (208) funding arrangements
were made in 13 (13) different currencies. The Group uses
derivatives to hedge against market risks related to its
funding issuances.
At the end of 2022, the Group’s total funding amounted to
EUR 40,210 million (EUR 40,712 million), of which the ECP
programme totalled EUR 4,650 million (EUR 3,819 million).
Of total funding, 48.5% (49.0%) were denominated in euros
and 51.5% (51.0%) in foreign currencies.
DEBT PROGRAMMES USED BY MUNIFIN
Medium Term Note (MTN) programme EUR 45,000 million
Euro Commercial Paper (ECP) programme EUR 10,000 million
AUD debt programme (Kangaroo) AUD 2,000 million
MuniFin’s funding is guaranteed by the Municipal Guarantee
Board (MGB), a public law institution whose members
consists of all the municipalities in mainland Finland. The
members are responsible for the liabilities of the MGB
in proportion to their population. The MGB has granted
guarantees for both the debt programmes and funding
arrangements outside the programmes. Based on this, debt
instruments issued by MuniFin are classified as zero-risk
when calculating the capital adequacy of credit institutions
and solvency of insurance companies, and as Level 1 liquid
assets in liquidity calculation in the EU.
Funding and liquidity management
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Investor interest in sustainable finance products continues
to increase, and regulation is also steering markets towards
a more sustainable direction. The Group is committed to
issuing new green and social bonds regularly. In 2022, the
Group issued a highly successful green bond that was
many times oversubscribed despite the challenging market
backdrop. As many as 80% of the participating investors
were dedicated ESG investors. For the second time in a row,
Environmental Finance chose MuniFin as the winner of the
highly competitive ‘Green Bond of the Year’ award in the local
authority or municipality category. The Group did not issue a
social bond in 2022.
Russia’s invasion of Ukraine has made it necessary to revise
MuniFin Group’s liquidity planning in order to ensure financing
for its customers. The Group’s long-term risk appetite
framework specifies that total liquidity must be enough to
cover uninterrupted business with no additional funding for
a survival horizon of at least 12 months, but the Group has
increased its liquidity substantially above this limit because
of the unusual political and market situation. With the amount
held at the end of the year, the Group could uphold all its
commitments with no additional funding for 15 months
(15 months).
Due to the general market uncertainty, the Group increased
during 2022 its average allocation in investments in
central bank deposits. At the end of 2022, the Group’s total
liquidity stood at EUR 11,506 million (EUR 12,222 million).
Of this, central bank deposits totalled EUR 8,144 million
(EUR 8,435 million) and investments in liquid, low-risk
securities EUR 3,330 million (EUR 3,753 million), with the
average credit rating of AA+ (AA+) and average maturity
of 2.6 years (2.6 years). In addition to this, money market
deposits in credit institutions totalled EUR 32 million
(EUR 34 million). The Group’s liquidity investments are
hedged with interest rate swaps. Changes in interest rates
therefore do not have a direct impact on profit and loss.
The Group’s Sustainable Investment Framework summarises
the sustainability principles, processes and responsibilities
of the Group’s investment operations. In addition to low
credit risk and high liquidity, sustainability is a key factor
in the Group’s liquidity investments. The Group monitors
the sustainability of its investments through their ESG
(Environmental, Social and Governance) score, calculated
quarterly by an external service provider. The service
provider changed in 2022. The ESG score takes into account
what the most significant ESG risks and opportunities facing
the issuer and its industry are, how exposed the issuer is to
those risks and opportunities, how well the issuer manages
key risks and opportunities, what the overall picture for the
issuer is and how does it compare to its global peer group.
These are evaluated using ten different ESG themes and
the end result is ESG score in scale 0–10, in which 10 is
the best score.
At the end of 2022, the Group’s liquidity investments had
an average ESG score of 7.65 on a scale of 0 to 10, above
the benchmark index of 7.43. The Group held a total of
EUR 498 million (EUR 456 million) in direct socially
responsible investments (SRIs), which is 15.0% (12.1%) of all
the Group’s investments in securities. The ratio of sustainable
investments was higher than the market benchmark of 8.1%
(5.0%). The ratio of socially responsible investments to the
Group’s own green and social funding was 14.5% (15.6%).
Funding and liquidity management
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
MuniFin’s credit ratings
Long-term fundingRATING AGENCY
Moody’s Investors Service
Standard & Poor’s
P-1
A-1+
Short-term funding
Stable
Stable
Outlook
MuniFin’s credit ratings correspond to those of the Government of Finland. The credit ratings did
not change during the financial year. The Municipal Guarantee Board, which guarantees MuniFin
Group’s funding, also has the corresponding ratings.
MuniFin’s credit ratings
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
MuniFin Group’s own funds and capital adequacy
MuniFin Group’s capital adequacy is very strong. The CET1
capital ratio was 97.6% (95.0%), which corresponds to its Tier
1 capital ratio and total capital ratio at the end of December
2022 (118.4%) because the Group only had CET1 capital at
the time. The total capital ratio fell due to the redemption
of the AT1 capital loan in April 2022, which reduced the
total capital ratio at the end of the year by 23.0 percentage
points. The Group’s CET1 capital ratio is over seven times the
required minimum, taking capital buffers into account.
Capital adequacy
%EUR million
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
30
50
70
90
110
130
150
12/2018 12/2019 12/2020 12/2021 12/2022
88.0
107. 9
132.7
118.4
66.3
83.1
104.3
95.0
97.6
1,41 3
1,413
1,510
1,510
1,6 24
1,624
1,7 56
1,756
1,482
1,482
Own funds (EUR million)
CET1 capital ratio, %
Total capital ratio, %
MuniFin Group’s own funds and capital adequacy
Capital adequacy
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
At the end of the year, the Group’s CET1 capital totalled
EUR 1 482 million (EUR 1,408 million). The Group no longer
had any Additional Tier 1 instruments at the end of financial
year, and its CET1 capital was therefore equal to its Tier 1
capital, EUR 1,482 million (EUR 1,756 million). The redemption
of the AT1 capital loan diminished the Group’s Tier 1 capital by
EUR 347 million. The Group had no Tier 2 capital. The Group’s
own funds totalled EUR 1,482 million (EUR 1,756 million).
The CET1 capital includes profit for the financial year.
The profit has been subject to a financial review by auditors
and can therefore be included in CET1 capital based on
the permission granted by the ECB in accordance with the
Capital Requirements Regulation (CRR).
CONSOLIDATED OWN FUNDS
(EUR 1,000) 31 Dec 2022 31 Dec 2021
Common Equity Tier 1 before regulatory adjustments 1,546,129 1,464,442
Regulatory adjustments to Common Equity Tier 1 -64,519 -56,172
Common Equity Tier 1 (CET1) 1,481,610 1,408,270
Additional Tier 1 capital before regulatory adjustments - 347,454
Regulatory adjustments to Additional Tier 1 capital - -
Additional Tier 1 capital (AT1) - 347,454
Tier 1 capital (T1) 1,481,610 1,755,723
Tier 2 capital before regulatory adjustments - -
Regulatory adjustments to Tier 2 capital - -
Tier 2 capital (T2) - -
Total own funds 1,481,610 1,755,723
Capital adequacy
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The Group’s total risk exposure amount increased by 2.4%
from the end of 2021, totalling EUR 1,518 million
(EUR 1,482 million) at the end of the financial year.
The risk exposure amount for credit and counterparty
credit risk decreased by EUR 10 million from the end of
2021. There was no capital requirement for market risk
at the end of the financial year or in the comparison year,
because the currency position was less than 2% of the
Group’s own funds, and, based on Article 351 of the CRR,
the own funds requirement for market risk has therefore not
been calculated. The credit valuation adjustment (CVA VaR)
decreased to EUR 471 million (EUR 494 million). The risk
exposure amount of operational risk was EUR 526 million
(EUR 457 million), and the growth was due to the increase in
profit indicators at the end of 2022.
Capital adequacy
526
471
522
457
494
532
Credit and counterparty credit risk
Credit Valuation Adjustment risk
Operational risk
EUR million EUR million
Total risk exposure amount 12/2022
EUR 1,518 million
Total risk exposure amount 12/2021
EUR 1,482 million
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Detailed key figures on the capital adequacy of both MuniFin
Group and the Parent Company are provided in the Notes to
this Report. The principles of capital adequacy management
are described in Note 2 to the Consolidated Financial
Statements, Risk management principles and the Group’s
risk position. Concurrently with this Report of the Board
of Directors and the Financial Statements, MuniFin Group
publishes a separate Pillar III Disclosure Report on capital
adequacy, risk management and remuneration, which is
available in English on MuniFin’s website.
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
95.0%95.0% 0.6%0.6% 0.0%0.0% 1.6%1.6%
-4.4%-4.4%
4.8%4.8% 97.6%97.6%
The Group’s CET1 capital ratio changes, %
CET1
capital ratio
12/2021
Credit risk Market risk CVA VaR Operational
risk
CET1
capital
CET1
capital ratio
12/2022
Capital adequacy
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The Group’s minimum capital requirements
and capital buffers
The minimum capital requirement is 8% for total capital
adequacy and 4.5% for CET1 capital adequacy. Under the Act
on Credit Institutions, the capital conservation buffer is 2.5%
and, for MuniFin Group, the additional capital requirement
for other systemically important credit institutions (O-SII)
is 0.5%. At the end of June 2022, the Finnish Financial
Supervisory Authority (FIN-FSA) gave its annual decision on
the O-SII buffers and kept MuniFin Group’s buffer unchanged
at 0.5%. The FIN-FSA has not imposed a systemic risk buffer
for MuniFin Group. The systemic risk buffer and the O-SII
buffer are parallel buffers, of which only the greater is applied.
In December 2022, the FIN-FSA decided not to impose
a countercyclical capital buffer requirement, which is
decided on a quarterly basis. For MuniFin Group, the credit
institution-specific countercyclical capital buffer requirement
that is imposed based on the geographical distribution
of exposures is 0.8% (0.1%). The Group therefore has a
minimum requirement of 8.3% (7.6%) for its CET1 capital ratio
and 11.8% (11.1%) for its total capital ratio.
In addition to the abovementioned requirements, the ECB has
imposed a bank-specific Pillar 2 Requirement (P2R) of 2.0%
on MuniFin Group as part of the annual Supervisory Review
and Evaluation Process (SREP). This requirement decreased
by 0.25 percentage points during the financial year. Including
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
4.50 %4.50 %
2.50 %
2.50 %
0.8 1 %
0.81 %
0.50 %
0.50 % 8.31 %8.31 %
2.00 %2.00 %
3.50 %
3.50 % 13.8 1 %13.81 %
The Group’s minimum capital requirements and capital buffers, %
CET1
capital
requirement
Capital
conservation
buffer
Counter-
cyclical
buffer
O-SII and
systemic
risk buffer
(max)
CET1
minimum
P2R Tier 1 and
Tier 2 capital
requirement
Minimum total
capital
requirements
with buffers
Capital adequacy
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
this P2R requirement, the total SREP capital requirement
ratio (TSCR) was 10% (10.25%) at the end of the year.
The minimum level of total capital ratio was 13.8% (13.4%)
including P2R and other additional capital buffers.
Leverage ratio, liquidity coverage ratio and
net stable funding ratio
At the end of the year, MuniFin Group’s leverage ratio
was 11.6% (12.8%). Muniin fulfils the CRR II definition of a
public development credit institution and may therefore
deduct all credit receivables from municipalities and the
central government in the calculation of its leverage ratio.
The amount of credit receivables from municipalities
and the central government was EUR 31 853 million
(EUR31,568million) at the end of the year. The reduced
leverage ratio is explained by the redemption of the AT1 loan,
which reduced the amount of the Group’s own funds. The
minimum required leverage ratio is 3%.
At the end of the year, MuniFin Group’s liquidity coverage
ratio (LCR) was 256.7% (334.9%) and its net stable funding
ratio (NSFR) was 120.3% (123.6%). Both have a minimum
requirement of 100%.
Liabilities under the Act on the Resolution of
Credit Institutions and Investment Firms
MuniFin’s crisis resolution authority is the EU’s Single
Resolution Board (SRB). The SRB has imposed on MuniFin
a binding minimum requirement for own funds and eligible
liabilities (MREL). The size of the MREL requirement is 10% of
the total risk exposure amount and 3% of the leverage ratio
exposure. The MREL requirement takes into account the
SRB’s decision on the simplified resolution strategy being
applied to MuniFin.
The MREL requirement will take effect on 1 January 2024,
but MuniFin has had to fully comply with the final MREL
target levels, which equal the capital and leverage ratio
requirements, from January 2022 onwards. MuniFin’s own
funds and eligible liabilities currently exceed multiple times
the MREL requirement, and there is no present need for
MuniFin to issue Tier 3 instruments.
Changes in banking regulation
During the financial year, MuniFin Group prepared for the
implementation of the European Commission’s delegated
regulation (2016/2251) regarding the use of securities as
initial margin in over-the-counter derivatives, which will enter
into force in phases. The initial margin requirement became
binding for MuniFin in September 2022, and MuniFin reached
the readiness to use securities for this purpose by the end of
the month.
In 2022, the Group also developed its disclosure of ESG
risks and prepared to disclose them in accordance with CRR
Article 449a, while taking into account the requirements of
the technical standard EBA/ITS/2022/01 of the European
Banking Authority. This information is available in a separate
Pillar III Disclosure Report, published in English concurrently
with this Report of the Board of Directors and the Financial
Statements on MuniFin’s website.
At the end of October 2021, the European Commission
published its proposal for the implementation of the final
Basel III banking regulatory standards in the EU (‘CRR III
package’). This reform will affect banks’ solvency calculation,
especially in the context of credit, market and operational
risks, credit valuation adjustment (CVA VaR), and leverage
ratio. It also introduces a new output floor. MuniFin Group’s
business model is based on zero-risk-weighted customer
financing, which will not change with the implementation
of the Basel III package. The reform will, however, affect
MuniFin’s capital adequacy calculations and reporting
methods. The Group will specify its impact assessments later
as it prepares for the CRR III’s entry into force.
In November 2022, the European Parliament approved
the Corporate Sustainability Reporting Directive (CSRD)
proposed by the Commission in April 2021. MuniFin Group
will prepare over the next few years for CSRD-compliant
sustainability reporting, which will be adopted for the financial
year 2025.
Capital adequacy
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
MuniFin Group’s financial objectives
MuniFin’s core mandate is to ensure that its limited customer
base, which is assigned to carry out public duties, has access
to affordable financing under all market conditions. This
core mandate necessitates MuniFin to keep both its capital
quantity and quality as well as its liquidity at levels that exceed
even the strictest regulatory requirements at all times, thus
enabling the continuation of normal business operations even
during financially difficult times. MuniFin has conservative
risk management policies and maintains a strong risk-bearing
capacity in both quantity and quality.
Due to its exceptional business model, the Group’s strictest
regulatory capital requirement is the leverage ratio, unlike
in most credit institutions. The leverage ratio requirement
is a prudential tool defined under the Capital Requirements
Regulation (CRR) that complements minimum capital
adequacy requirements. Its purpose is to prevent credit
institutions from building up excessive leverage. The leverage
ratio is calculated as a ratio between the institution’s Tier 1
capital and total exposure calculated based on the assets
and off-balance sheet items as described in the regulatory
framework. MuniFin fulfils the CRR II (Regulation (EU)
2019/876) definition of a public development credit institution
and may therefore deduct all credit receivables from
municipalities and the central government in the calculation
of its leverage ratio. After the deduction, the most significant
factor affecting MuniFin’s leverage ratio is the size of its
liquidity portfolio, which safeguards its liquidity.
MuniFin’s aim is for the Group’s Common Equity Tier 1
(CET1) capital to always surpass 7%, which is the sum of the
minimum requirement set in regulation (3%) and the capital
buffers set by the management (4%). The Group uses these
capital buffers to prepare for events and changes that have
an adverse effect on its capital position. These can include
realised business risks or regulatory changes. The capital
requirement for business risk is based on a strict stress test,
and it mostly results from unrealised fair value changes,
which are temporary in nature.
At the end of 2022, the Group’s CET1 leverage ratio was
11.6%. Capital exceeding the Group’s minimum target covers
fluctuation in capital requirements caused by changes in the
total liquidity amount and safeguards the Group’s continuity
of operations and ability to pay dividends.
MuniFin Group’s financial objectives
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Considering that MuniFin’s objective as a public development
credit institution is not to maximise profits, the Group aims at
a result that will ensure the Group’s ability to carry out its core
mandate in the long-term. The Group’s objective is to achieve
at least a result that is sufficient to cover any increases
in capital requirements arising from increased business
operations and satisfy the shareholders’ expected yield in
the long term. MuniFin uses long-term pricing strategies
and other measures to maximise its customer benefits while
also ensuring the continuity of its operations and the yield
expectation of its shareholders.
The MuniFin Board of Directors has made a dividend policy
proposal to the Annual General Meeting (AGM). The policy
proposal is published in full as an appendix to the notice of
the AGM. The proposed dividend policy is for MuniFin to pay
30–60% of the Group’s financial year’s profit in dividends.
Dividend distribution must not jeopardize MuniFin’s
solvency, liquidity or its ability to meet the commitments.
MuniFin Group’s financial objectives
When drafting the dividend proposal and deciding on the distribution
of profits one should take into account factors that affect the Group’s
capital position on a broad spectrum, including the following:
• Uncertainties and changes in the operating environment and regulation
• Assessments of the Group’s financial situation in the future
• The Group’s funding position and liquidity
• Changes to the Group’s risk position
• Unrealised fair value changes affecting the Group’s own funds
• Assessments of the Group’s liquidity development
• Views of supervisory authorities and credit rating agencies
• Accruals of possible AT1 capital instrument not recognised in PnL.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Risk management
MuniFin Group’s operations require adequate risk
management mechanisms to ensure that its risk position
remains within the limits set by the Parent Company’s Board
of Directors. To preserve its strong credit rating, the Group
applies conservative risk management principles and aims to
keep the overall risk status low.
The relevant risk types associated with MuniFin Group’s
operations include credit and counterparty risk, market
risk and liquidity risk. All business operations also involve
strategic risks, ESG risks and operational risks, including
compliance risk.
The Group’s risks are described in more detail in in Note 2 to
the Consolidated Financial Statements, Risk management
principles and the Group’s risk position. Concurrently with
this Report of the Board of Directors and the Financial
Statements, MuniFin Group publishes a separate Pillar III
Disclosure Report on capital adequacy, risk management
and remuneration, which is available in English on
MuniFin’s website.
The Group’s risk position
There were no material changes in MuniFin Group’s risk
position during 2022, and risks remained within the risk
appetite limits set by the Board of Directors. Russia’s invasion
of Ukraine has had little effect on the Group’s financial
position and results. Despite the market turbulence, the
Group’s funding continued in the usual manner 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. Russia’s
invasion of Ukraine mainly affects the Group’s risks indirectly
through market conditions. Cyberattacks targeted at the
Group could also affect its risks, but the Group has carefully
prepared for these.
Despite the changes in the operational environment, the
Group’s risk position remained stable and at a low level
during the reporting period. Unrealised fair value changes of
financial instruments caused typical earnings volatility during
the year. The Group continuously monitors and analyses the
volatility arising from valuations and prepares for any impacts
this may have on its profit and capital adequacy.
The Group is exposed to credit risks as part of its business.
Due to the nature of its customer base, credit risks are low.
The Group’s credit risks emerge almost exclusively from the
customer financing, the liquidity portfolio investments and the
derivatives portfolio. MuniFin also offers derivative products
for its customers for hedging their interest rate positions.
These products are covered with offsetting contracts from
the market. The Group only uses derivatives for hedging
against market risks.
Risk management
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
In view of its credit risk mitigation techniques (real estate
collateral and guarantees received) and the exemptions set
out in CRR II Article 400 related to the calculation of large
exposures, MuniFin Group is not exposed to customer risk
in its customer financing referred in the regulation, and thus
the customer risk of any individual customer does not exceed
10% of the Group’s own funds. The amount of expected credit
losses was EUR0.1million (EUR-0.1million) recognised in
the income statement for the financial year. The amount of
forborne loans was EUR80million (EUR88million), while
non-performing exposures amounted to EUR7 million
(EUR128million) at the end of the year. For these non-
performing exposures, MuniFin has absolute guarantees by
municipalities or real estate collateral and state deficiency
guarantee, and these exposures are therefore not expected
to carry the risk of a final credit loss. Non-performing
exposures represented 0.02% (0.4%) of total customer
exposures.
MuniFin’s credit risk position remained stable and at a low
level during the year. It is expected to remain stable and in line
with the Group’s credit risk strategy also in the future.
Market risks include interest rate risk, exchange rate risk and
other market and price risks. The Group uses derivatives to
hedge against market risks. Derivatives can only be used
for hedging purposes as the Group does not engage in
trading activities. Interest rate risk mainly arises from the
differences in reference rates applicable to the assets and
liabilities in the balance sheet. The Group actively monitors
and hedges its interest rate risk. Eight scenarios are used in
the calculation of the net interest income (NII) risk, of which
the least favourable outcome is considered. One-year NII
risk at the end of December was EUR-25million with least
favourable scenario being a decrease of 200 basis points
in the whole interest curve (at the end of 2021, the least
favourable scenario was a rise of 50 basis points in the
whole interest curve, EUR0million). Several scenarios are
also used in the calculation of the Economic Value of Equity
(EVE), of which the least favourable outcome is considered.
At the end of the year, the least favourable scenario was a rise
of 200 basis points in the whole interest curve, when EVE
was EUR-34million (at the end of 2021, the least favourable
scenario was a rise of 50 basis points in the whole interest
curve, EUR-13million).
MuniFin Group’s foreign exchange (FX) risk is hedged
by using derivative contracts to swap all funding and
investments denominated in foreign currency into euros.
The Group’s customer financing is denominated in euros.
The Group has no significant open FX positions. In practice,
a small temporary exchange rate risk may arise due to
collateral management in the clearing of derivatives by
central counterparties. This exchange rate risk is actively
monitored and hedged. Derivatives are also used to hedge
against other market and price risks.
The Group has also determined valuation risk as a significant
risk for its business. During the reporting period, unrealised
fair value changes of financial instruments caused typical
earnings volatility for the Group. 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. The Group continuously monitors and
analyses the volatility arising from valuations and prepares for
any impacts this may have on its profit and capital adequacy.
The Group’s market risk has remained stable despite the
turbulent markets.
Risk management
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
MuniFin Group manages its refinancing risk by limiting the
average maturity between financial assets and liabilities.
In addition, the Group manages its liquidity risk by setting a
limit for the minimum adequacy of the available short-term
and long-term liquidity. The Group revised its calculation
method for the survival horizon in 2022, and the figure stood
at 15months (15months) at the end of the year, calculated
with the new method. The Group’s liquidity remained
good, with the liquidity coverage ratio (LCR) being 256,7%
(334.9%) at the end of the year. The availability of long-term
funding is monitored via the net stable funding ratio (NSFR),
which stood at 120.3% (123.6%) at the end of the year.
The availability of funding remained good throughout the
year, and the Group issued EUR8,827million (EUR9,395
million) in long-term funding.
MuniFin Group’s operational risks are estimated to be at
a moderate level, and there were no material losses from
operational risks during 2022. The Group’s operating
practices have changed with remote work arrangements, but
the Group’s business operations have continued normally.
ESG risks include environmental, social and governance
risks. There have been no material changes in ESG
risks during the year. According to the Group’s estimate,
it is currently not exposed to any substantial social or
governance risks, and environmental and climate risks are
also unlikely to manifest substantially in the short term. In
the medium and long term, climate risks may nevertheless
have an adverse economic effect on the Group’s customers.
In 2022, the Group made substantial investments into
building its environmental and climate risk framework in line
with regulatory requirements and feedback received from the
ECB. This work will continue in 2023 and 2024.
MuniFin Group took part in the ECB’s climate stress test
in the first half of 2022. The results were published in
July. The stress test concluded that the Group’s potential
exposure to transition risks caused by climate change is
lower than the average of all participating banks. During the
financial year 2022, the Group continued to further develop
its ESG risk management. More information related to the
Group’s ESG risks is published in a Pillar III Disclosure Report,
which is separate from this Report of the Board of Directors
and the Financial Statements. The Report is available in
English on MuniFin’s website.
Risk management
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Governance
In addition to corporate legislation, MuniFin complies with
the governance requirements of the Finnish Act on Credit
Institutions and supervisory guidelines. The governance
policy is described in more detail on MuniFin’s website.
Upon the publication of the Annual Report, MuniFin Group
also publishes a Corporate Governance Statement on its
website, pursuant to chapter 7, section 7 of the Finnish
Securities Market Act. The statement is separate from
the Annual Report and includes a description of the main
features of the internal audit and risk management systems
pertaining to the financial reporting process. The statement
also includes the governance descriptions required by the
Act on Credit Institutions as well as information on how
MuniFin complies with the Finnish Corporate Governance
Code for listed companies published by the Finnish
Securities Market Association. This code applies to Finnish
listed companies, i.e. companies whose shares are listed
on Nasdaq Helsinki Ltd (Helsinki Stock Exchange). Since
MuniFin is exclusively an issuer of listed bonds and its shares
are not subject to public trading, this code does not apply
directly to MuniFin.
Group structure
Municipality Finance Group (MuniFin Group or the Group)
consists of Municipality Finance Plc (MuniFin or the Parent
Company) and Financial Advisory Services Inspira Ltd
(Inspira). Inspira is fully owned by MuniFin. No changes to the
group structure took place during the reporting period.
General meeting
The Annual General Meeting (AGM) of MuniFin was held
on 24March2022. The AGM confirmed the Financial
Statements for 2021 and discharged the members of the
Board of Directors, the CEO and the Deputy to the CEO from
liability for the financial year 2021. In addition, in accordance
with the proposal of the Board of Directors, the AGM decided
on a dividend payment of EUR1.03 per share, totalling
EUR40,235,711.94. The amount of distributable funds
on the Group’s balance sheet on 31December2021 was
EUR267,949,619.07.
Based on the proposal of the Shareholders’ Nomination
Committee, the AGM decided to appoint eight Board
members for the 2022–2023 term, lasting from the 2022
AGM to the end of the subsequent AGM. The AGM also
confirmed the Shareholders’ Nomination Committee’s
proposal on the remuneration of Board members.
In addition, the meeting re-elected KPMG Oy Ab as MuniFin’s
auditor, with APA Tiia Kataja as the principal auditor. Kataja
acted as the principal auditor during the previous term as
well.
The AGM also decided, based on the proposal of the
Shareholders’ Nomination Committee, that the Committee
will be supplemented by a fifth member representing the
municipal sector. MuniFin’s three largest shareholders –
public sector pension provider Keva, State of Finland and the
City of Helsinki – as well as the Association of Finnish Local
and Regional Authorities have each nominated one member
to the Committee. The fifth member will be appointed by a
joint decision between the next five largest shareholders.
The AGM’s resolutions are published on MuniFin’s website.
Governance
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Board of Directors
The Shareholders’ Nomination Committee made a proposal
to the AGM held on 24March 2022 regarding the members
to be elected for the term that began at the end of the 2022
AGM and will conclude at the end of the subsequent AGM.
The AGM elected the following members to the Board
of Directors: Maaria Eriksson, Markku Koponen,
Kari Laukkanen, Vivi Marttila, Tuomo Mäkinen,
Minna Smedsten, Denis Strandell and Leena Vainiomäki.
As per the Committee’s proposal, the MuniFin Board
nominated Kari Laukkanen as the Chair of the Board and
Maaria Eriksson as the Vice Chair.
MuniFin has statutory audit, risk and remuneration
committees established by the Board of Directors.
The committees act as assisting and preparatory
bodies to the Board of Directors. The MuniFin Board
selected Markku Koponen (Chair), Vivi Marttila, Minna
Smedsten and Denis Strandell as the members of the
Audit Committee. In the Risk Committee, the Board
selected Leena Vainiomäki (Chair), Maaria Eriksson,
Kari Laukkanen and Tuomo Mäkinen. In the Remuneration
Committee, the Board selected Kari Laukkanen
(Chair), Leena Vainiomäki and Maaria Eriksson.
From the 2021 AGM to the 2022 AGM, the members
of the Board of Directors were Kari Laukkanen (Chair),
Maaria Eriksson (Vice Chair), Markku Koponen, Vivi Marttila,
Tuomo Mäkinen, Minna Smedsten, Denis Strandell,
Leena Vainiomäki and Kimmo Viertola. Viertola was not
available for the Board’s 2022–2023 term.
The operations of the MuniFin Board of Directors and
its committees are described in more detail on MuniFin’s
website.
Personnel
At the end of December 2022, MuniFin Group had 175
(164) employees, of which 165 (153) worked for the Parent
Company. Salaries and remuneration paid across the Group
amounted to EUR15.5million (EUR14.6million).
The President and CEO of MuniFin is Esa Kallio, with Mari
Tyster, Executive Vice President, acting as deputy to the
CEO. In addition, the MuniFin Executive Management Team
includes Executive Vice Presidents Aku Dunderfelt, Toni
Heikkilä, Joakim Holmström, Harri Luhtala, Minna Piitulainen
and Juha Volotinen.
Salaries and remuneration
The remuneration paid to MuniFin Group’s management
and employees consists of fixed remuneration (base salary
and fringe benefits) and a variable element based on the
conditions of the remuneration scheme. The principles
of the remuneration scheme are confirmed by the Parent
Company’s Board of Directors, and they are reviewed on
an annual basis. The Remuneration Committee advises the
Board of Directors on remuneration-related matters. For
more information on salaries and remuneration, refer to Note
44 Salaries and remuneration in the Consolidated Financial
Statements. Concurrently with this Report of the Board of
Directors and the Financial Statements, MuniFin Group is
publishing a separate Pillar III Disclosure Report on capital
adequacy, risk management and remuneration, which is
available in English on MuniFin’s website.
Internal audit
The purpose of MuniFin Group’s internal audit is to monitor
the reliability and accuracy of the Group’s information on
finances and other management. It also ensures that MuniFin
Group has sufficient and appropriately organised operations,
way of working and IT systems and that the risks associated
with the operations are adequately managed.
Governance
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Share capital and shareholders
At the end of the 2022 financial year, MuniFin had paid share capital registered in the
Trade Register to the amount of EUR43,008,044.20, and the number of shares was
39,063,798. The Company has two series of shares (A and B), with equal voting and dividend
rights. Each share confers one vote at the Annual General Meeting.
At the end of 2022, MuniFin had 276 (276) shareholders.
10 LARGEST SHAREHOLDERS 31 Dec 2022 No. of shares Per cent
1. Keva 11,975,550 30.7%
2. Republic of Finland 6,250,000 16.0%
3. City of Helsinki 4,066,525 10.4%
4. City of Espoo 1,547,884 4.0%
5. VAV Asunnot Oy (City of Vantaa) 963,048 2.5%
6. City of Tampere 919,027 2.4%
7. City of Oulu 903,125 2.3%
8. City of Turku 763,829 2.0%
9. City of Kuopio 592,028 1.5%
10. City of Lahti 537,926 1.4%
The number of shares presented in the above table do not include any shares owned by
the Group companies of the listed shareholders.
MuniFin is not aware of any material changes in the holdings of major shareholders during
the year.
Share capital and shareholders
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Events after the reporting period
The MuniFin Board of Directors is not aware of any events having taken place after the end of
the financial year that would have a material effect on the Group’s financial standing.
Events after the reporting period
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
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-19 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.
Outlook for 2023
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Municipality Finance Plc has distributable funds of EUR365,774,616.34, of which the profit for
the financial year totalled EUR138,060,709.21.
The Board of Directors proposes to the Annual General Meeting that based on the confirmed
balance sheet EUR1.73 per share to be paid in dividend, totalling EUR67,580,370.54.
MuniFin’s profit for the financial year was very good. The Board of Directors considers
the payment of this dividend to be well justified. MuniFin clearly fulfils all the prudential
requirements set for it. No events have taken place since the end of the financial year that
would have a material effect on the Company’s financial position. In the Board’s opinion, the
proposed distribution of profits does not place the fulfilment of the capital requirements or the
Company’s liquidity in jeopardy or the proposal do not conflict with the binding legislation.
Dividends will be paid to shareholders who are recorded in the Company’s list of shareholders
on 4 April 2023. The Board of Directors proposes that the dividends be paid on 13 April 2023.
The Board’s proposal concerning the profit shown in balance sheet
and deciding on the distribution of dividends
The Board’s proposal concerning the profit shown in balance sheet and deciding on the distribution of dividends
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Jan–Dec 2022 Jan–Dec 2021 Jan–Dec 2020 Jan–Dec 2019 Jan–Dec 2018
Turnover (EUR million) 759 535 532 718 714
Net interest income (EUR million)* 241 280 254 240 236
% of turnover 31.8 52.4 47.7 33.5 33.1
Net operating profit (EUR million)* 215 240 194 131 190
% of turnover 28.3 44.8 36.5 18.3 26.6
Unrealised fair value changes (EUR million)* 45 27 -3 -54 0
Net operating profit excluding unrealised fair value changes (EUR million)* 170 213 197 186 190
Cost-to-income ratio* 0.2 0.2 0.2 0.3 0.2
Cost-to-income ratio excluding unrealised fair value changes* 0.3 0.2 0.2 0.2 0.2
New long-term customer financing (EUR million)* 4,375 3,671 5,157 3,486 3,226
New long-term funding (EUR million)* 8,827 9,395 10,966 7,385 7,436
The Group's development
The Group’s development
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
31 Dec 2022 31 Dec 2021 31 Dec 2020 31 Dec 2019 31 Dec 2018
Return on equity (ROE), %* 9.9 10.7 9.4 6.8 10.8
Return on equity (ROE) excluding unrealised fair value changes, %* 7.8 9.6 9.6 9.6 10.7
Return on assets (ROA), %* 0.4 0.4 0.4 0.3 0.4
Return on assets (ROA) excluding unrealised fair value changes, %* 0.3 0.4 0.4 0.4 0.4
Long-term customer financing (EUR million)* 29,144 29,214 28,022 24,798 22,968
Total funding (EUR million)* 40,210 40,712 38,139 33,929 30,856
Equity (EUR million) 1,614 1,862 1,705 1,594 1,486
Total balance sheet (EUR million) 47,736 46,360 44,042 38,934 35,677
Total liquidity (EUR million)* 11,506 12,222 10,089 9,882 8,722
Liquidity Coverage Ratio (LCR), % 256.7 334.9 264.4 430.2 176.7
Net Stable Funding Ratio (NSFR), % 120.3 123.6 116.4 116.3 -
Equity ratio, %* 3.4 4.0 3.9 4.1 4.2
CET1 capital (EUR million) 1,482 1,408 1,277 1,162 1,065
Tier 1 capital (EUR million) 1,482 1,756 1,624 1,510 1,413
Total own funds (EUR million) 1,482 1,756 1,624 1,510 1,413
CET1 capital ratio, % 97.6 95.0 104.3 83.1 66.3
Tier 1 capital ratio, % 97.6 118.4 132.7 107.9 88.0
Total capital ratio, % 97.6 118.4 132.7 107.9 88.0
Leverage ratio, %** 11.6 12.8 3.9 4.0 4.1
Personnel 175 164 165 167 151
* Alternative performance measure.
** MuniFin fulfils the CRR II definition of a public development credit institution, and may therefore deduct all the credit receivables from municipalities and the central government in the calculation of
leverage ratio. CRR II Regulation entered into force in June 2021.
The calculation formulas for all key figures can be found on pages 38–45. All figures presented in the Report of the Board of Directors are those of MuniFin Group, unless otherwise stated.
The Group’s development
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
MuniFin Group defines the Alternative Performance Measures (APMs) to be financial
measures that have not been defined in the IFRS standards or the capital requirements
regulation (CRD/CRR). The APMs improve comparability between companies in the same
sector and between reporting periods and provide valuable information to the readers of
the financial reports. The APMs provide a more consistent basis for comparing the results of
financial periods and for assessing MuniFin Group’s performance. They are also an important
aspect of the way in which the Group’s management defines operating targets and monitors
performance.
The APMs are presented in MuniFin Group’s financial reports in accordance with the
guidelines for Alternative Performance Measures issued by the European Securities and
Markets Authority (ESMA).
Note 1. Key figures
Tunnusluvut alku
No t e 1. K e y figur es
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
ALTERNATIVE
PERFORMANCE MEASURE DEFINITION / EXPLANATION CALCULATION FORMULA / RECONCILIATION 1 Jan–31 Dec 2022 1 Jan–31 Dec 2021
EUR million
Net interest income Interest income and expense from financial assets
and liabilities are recognised in net interest income.
A significant part of the Group’s revenues consists
of net interest income.
Interest and similar income (incl. Leasing) 712 504
interest and similar expense -471 -223
Net interest income 241 280
Unrealised fair value changes According to IFRS 9 standard, part of financial
instruments are measured at fair value through profit
and loss which increases PnL volatility. To enhance
comparability of business performance between periods
and companies, it is often necessary to exclude the PnL
effect of the unrealised fair value changes.
Net income from securities transactions, unrealised fair value changes 8 22
Net income from hedge accounting 36 5
Unrealised fair value changes 45 27
Net operating profit Net operating profit describes the Group’s operating
profit before taxes.
Net operating profit 215 240
Net operating profit excluding
unrealised fair value changes
Net operating profit excluding unrealised fair value
changes as an APM is of interest for showing MuniFin
Group’s underlying earnings capacity.
Net operating profit 215 240
- Unrealised fair value changes 45 27
Net operating profit excluding unrealised fair value changes 170 213
Income Income, which describes the Group's total income
including net interest income, is used e.g. as a
denominator (excl. Commission expenses) in Cost-to-
income ratio.
Net interest income 241 280
Commission income 2 2
Net income from securities and foreign exchange transactions 8 24
Net income on financial assets at fair value through other comprehensive income 0 -
Net income from hedge accounting 36 5
Other operating income 0 0
Income 288 311
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
ALTERNATIVE
PERFORMANCE MEASURE DEFINITION / EXPLANATION CALCULATION FORMULA / RECONCILIATION 1 Jan–31 Dec 2022 1 Jan–31 Dec 2021
EUR million
Income excluding unrealised fair
value changes
Income excluding unrealised fair value changes reflects
the Group’s operating income, of which the most
significant is net interest income.
Income 288 311
- Unrealised fair value changes 45 27
Income excluding unrealised fair value changes 243 285
Other income Other income includes all other income of the Group
except net interest income and unrealised fair value
changes of net income from securities transactions and
hedge accounting.
Commission income 2 2
Net income from securities transactions, realised 0 1
Net income from foreign exchange transactions 0 1
Net income on financial assets at fair value through other comprehensive income 0 -
Other operating income 0 0
Other income 2 4
Costs Costs, which describes the Group's total costs,
is used e.g. as a numerator (excl. Commission expenses)
in Cost-to-income ratio.
Commission expenses 6 5
Administrative expenses 37 35
Depreciation and impairment on tangible and intangible assets 10 16
Other operating expenses 20 16
Costs 73 72
Costs excluding the
non-recurring item
Costs excluding the non-recurring item reflects the
amount of costs comparable between financial periods.
Costs 73 72
Non-recurring item (expenses on terminated IT system implementation) -5 -10
Costs excluding the non-recurring item 69 61
Cost-to-income ratio Cost-to-income ratiois an established key ratio in the
banking sector for assessing the relationship between
expenses and income. Theratiogives investors a
comparative view of MuniFin Group’s cost-effectiveness.
Costs (excl. Commission expenses) 68 66
÷ Income (incl. Net commission income) 283 306
Cost-to-income ratio 0.2 0.2
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
ALTERNATIVE
PERFORMANCE MEASURE DEFINITION / EXPLANATION CALCULATION FORMULA / RECONCILIATION 1 Jan–31 Dec 2022 1 Jan–31 Dec 2021
EUR million
Cost-to-income ratio excluding
unrealised fair value changes
Cost-to income ratio excluding unrealised fair value
changes gives a more precise picture of MuniFin Group’s
operative effectiveness as it excludes the income
volatility of unrealised fair value changes. It improves
comparability of operative effectiveness between
companies and reporting periods.
Costs (excl. Commission expenses) 68 66
÷ (Income (incl. Net commission income) 283 306
- Unrealised fair value changes) 45 27
Cost-to-income ratio excluding unrealised fair value changes 0.3 0.2
The effect of unrealised
fair value changes on other
comprehensive income and
equity net of tax
Key performance indicator used in management
reporting to describe the effect of unrealised fair value
changes during the reporting period on the Group’s
comprehensive income and equity net of tax.
Unrealised fair value changes through PnL 45 27
Taxes related to the unrealised fair value changes through PnL -9 -5
Net change in fair value due to changes in own credit risk on financial liabilities
designated at fair value through profit or loss, net of tax
0 0
Net change in Cost-of-Hedging, net of tax -12 -2
Net change in fair value of financial assets at fair value through other
comprehensive income, net of tax
-5 -1
The effect of unrealised fair value changes on other comprehensive
income and equity net of tax
19 19
New long-term customer
financing
Key performance indicator used in management
reporting to describe MuniFin Group’s business volume
during the reporting period. The indicator includes the
amount of new loans excluding unrealised fair value
changes and new leased assets excluding unrealised fair
value changes.
New lending 4,074 3,275
New leased assets 301 396
New long-term customer financing 4,375 3,671
New long-term funding Key performance indicator used in management
reporting to describe MuniFin Group’s funding activity
during the reporting period. The indicator includes the
amount of new funding (over 1 year) issued excluding
unrealised fair values changes.
New long-term funding 8,827 9,395
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
ALTERNATIVE
PERFORMANCE MEASURE DEFINITION / EXPLANATION CALCULATION FORMULA / RECONCILIATION 31 Dec 2022 31 Dec 2021
EUR million
Return on Equity (ROE), % ROE measures the efficiency of MuniFin Group’s capital
usage. It is a commonly used performance measure and
as an APM improves comparability between companies.
The key figure is reported annualised.
((Net operating profit 215 240
- Taxes) -43 -48
÷ Equity and non-controlling interest (average of values at the beginning and
end of the period)) x100
1,738 1,783
Return on Equity (ROE), % 9.9% 10.7%
Return on Equity (ROE)
excluding unrealised fair value
changes, %
MuniFin Group’s strategy indicator.
Excluding the unrealised changes in fair values
increases comparability between reporting periods.
The key figure is reported annualised.
((Net operating profit excluding unrealised fair value changes 170 213
- Taxes) -34 -43
÷ Equity and non-controlling interest (average of values at the beginning and
end of the period)) x100
1,738 1,783
Return on Equity (ROE) excluding unrealised fair value changes, % 7.8% 9.6%
Return on Assets (ROA), % ROA measures the efficiency of MuniFin Group’s
investments. It is a commonly used performance
measure and as an APM improves comparability between
companies. The key figure is reported annualised.
((Net operating profit 215 240
- Taxes) -43 -48
÷ Average balance sheet total (average of values at the beginning and end of
the period)) x100
47,048 45,201
Return on Assets (ROA), % 0.4% 0.4%
Return on Assets (ROA)
excluding unrealised fair value
changes, %
Excluding the unrealised changes in fair values
increases comparability of ROA between reporting
periods. The key figure is reported annualised.
((Net operating profit excluding unrealised fair value changes 170 213
- Taxes) -34 -43
÷ Average balance sheet total (average of values at the beginning and end of
the period)) x100
47,048 45,201
Return on Assets (ROA) excluding unrealised fair value changes, % 0.3% 0.4%
Equity ratio, % Equity ratiois an investment leverage and solvency ratio
that measures the amount of assets that are financed by
equity. It is a commonly used performance measure and
as an APM improves comparability between companies.
(Equity and non-controlling interest 1,614 1,862
÷ Balance sheet total) x100 47,736 46,360
Equity ratio, % 3.4% 4.0%
Long-term loan portfolio Key performance indicator used in management
reporting to describe MuniFin Group’s business volume.
Loans and advances to the public and public sector entities 29,144 29,214
- Leasing 1,303 1,334
Long-term loan portfolio 27,841 27,880
Long-term customer financing Key performance indicator used in management
reporting to describe MuniFin Group’s business volume.
Loans and advances to the public and public sector entities 29,144 29,214
Long-term customer financing 29,144 29,214
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
ALTERNATIVE
PERFORMANCE MEASURE DEFINITION / EXPLANATION CALCULATION FORMULA / RECONCILIATION 31 Dec 2022 31 Dec 2021
EUR million
Long-term customer financing
excluding unrealised fair value
changes
Key performance indicator used in management
reporting to describe MuniFin Group’s business volume.
In this indicator the unrealised fair value changes have
been excluded to enhance comparability of business
performance between periods.
Loans and advances to the public and public sector entities 29,144 29,214
- Unrealised fair value changes 1,516 -151
Long-term customer financing excluding unrealised fair value changes 30,660 29,063
Short-term customer financing Key performance indicator used in management
reporting to describe MuniFin Group’s business volume.
Debt securities, commercial papers (municipalities and municipal companies) 1,457 1,089
Short-term customer financing 1,457 1,089
Total funding Key performance indicator used in management
reporting to describe MuniFin Group’s funding volume.
Liabilities to credit institutions 2,333 2,801
Liabilities to the public and public sector entities 2,530 3,325
Debt securities issued 35,592 35,328
Tot al 40,454 41,453
- CSA collateral (received) -244 -741
Total funding 40,210 40,712
Long-term funding Key performance indicator used in management
reporting to describe MuniFin Group’s funding volume.
Total funding 40,210 40,712
- Short-term issued funding (ECP) -4,650 -3,819
Long-term funding 35,560 36,893
Total liquidity Key performance indicator used in management
reporting to describe MuniFin Group’s liquidity position.
Debt securities 4,787 4,841
- Short-term customer financing -1,457 -1,089
Shares and participations - -
Investments in securities total 3,330 3,753
Cash and balances with central banks - 8,399
Other deposits 8,176 70
Other investments total 8,176 8,469
Total liquidity 11,506 12,222
Ratio of socially responsible
investments to MuniFin Group's
own green and social funding
Key performance indicator used in management
reporting for social responsilibity area.
(Socially responsible investments 498 456
÷ Green and social funding) x100 3,430 2,930
Ratio of socially responsible investments to MuniFin Group's own green
and social funding
14.5% 15.6%
Vaihtoehtoiset tunnusluvut loppu
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
OTHER MEASURES DEFINITION CALCULATION FORMULA / RECONCILIATION 1 Jan–31 Dec 2022 1 Jan–31 Dec 2021
EUR million
Turnover Defined in IFRS (IAS 1). Turnover is not disclosed in
MuniFin Group’s income statement so the formula for
turnover should be given even though it is not considered
to be an APM.
Interest and similar income (incl. Leasing) 712 504
Commission income 2 2
Net income from securities and foreign exchange transactions 8 24
Net income on financial assets at fair value through other comprehensive income 0 -
Net income from hedge accounting 36 5
Other operating income 0 0
Turnover 759 535
31 Dec 2022 31 Dec 2021
Liquidity Coverage Ratio
(LCR), %
Defined in CRR. (Liquid assets 10,882 11,564
÷ (Liquidity outflows - liquidity inflows in a stress situation)) x100 4,240 3,453
Liquidity Coverage Ratio (LCR), % 256.7% 334.9%
Net Stable Funding Ratio
(NSFR), %
Defined in CRR. (Available Stable Funding (ASF) 31,966 33,638
÷ Required Stable Funding (RSF)) x100 26,583 27,221
Net Stable Funding Ratio (NSFR), % 120.3% 123.6%
CET1 capital ratio, % Defined in CRR. (Common Equity Tier 1 (CET1) capital 1,482 1,408
÷ Risk exposure amount) x100 1,518 1,482
CET1 capital ratio, % 97.6% 95.0%
Muut tunnusluvut alku
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
OTHER MEASURES DEFINITION CALCULATION FORMULA / RECONCILIATION 1 Jan–31 Dec 2022 1 Jan–31 Dec 2021
EUR million
Tier 1 capital ratio, % Defined in CRR. (Tier 1 capital 1,482 1,756
÷ Risk exposure amount) x100 1,518 1,482
Tier 1 capital ratio, % 97.6% 118.4%
Total capital ratio, % Defined in CRR. (Total own funds 1,482 1,756
÷ Risk exposure amount) x100 1,518 1,482
Total capital ratio, % 97.6% 118.4%
Leverage ratio, % Defined in CRR. (Tier 1 capital 1,482 1,756
÷ Total exposure) x100 12,779 13,716
Leverage ratio, % 11.6% 12.8%
Muut tunnusluvut loppu
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 2. Group's capital adequacy position
Table 1. Minimum capital requirements and capital buffers
MINIMUM CAPITAL REQUIREMENTS AND
CAPITAL BUFFERS, 
31 Dec 2022
Capital
requirement
Capital
conservation
buffer
1)
Countercyclical
buffer
2)
O-SII
3)
Systemic
risk buffer
4)
Total capital
buffers Tota l
Common Equity Tier 1 (CET1) capital 4.50% 2.50% 0.81% 0.50% 0.00% 3.81% 8.31%
Tier 1 (T1) Capital 6.00% 2.50% 0.81% 0.50% 0.00% 3.81% 9.81%
Total own funds 8.00% 2.50% 0.81% 0.50% 0.00% 3.81% 11.81%
MINIMUM CAPITAL REQUIREMENTS AND
CAPITAL BUFFERS (EUR 1,000)
31 Dec 2022
Capital
requirement
Capital
conservation
buffer
1)
Countercyclical
buffer
2)
O-SII
3)
Systemic
risk buffer
4)
Total capital
buffers Tota l
Common Equity Tier 1 (CET1) capital 68,312 37,951 12,320 7,590 0 57,861 126,173
Tier 1 (T1) Capital 91,082 37,951 12,320 7,590 0 57,861 148,943
Total own funds 121,443 37,951 12,320 7,590 0 57,861 179,304
No t e 2. Gr oup’s c apital adequacy position
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
MINIMUM CAPITAL REQUIREMENTS AND
CAPITAL BUFFERS, 
31 Dec 2021
Capital
requirement
Capital
conservation
buffer
1)
Countercyclical
buffer
2)
O-SII
3)
Systemic
risk buffer
4)
Total capital
buffers Tota l
Common Equity Tier 1 (CET1) capital 4.50% 2.50% 0.15% 0.50% 0.00% 3.15% 7.65%
Tier 1 (T1) Capital 6.00% 2.50% 0.1 5% 0.50% 0.00% 3.15% 9.15%
Total own funds 8.00% 2.50% 0.1 5% 0.50% 0.00% 3.15% 11.15%
MINIMUM CAPITAL REQUIREMENTS
AND CAPITAL BUFFERS (EUR 1,000)
31 Dec 2021
Capital
requirement
Capital
conservation
buffer
1)
Countercyclical
buffer
2)
O-SII
3)
Systemic
risk buffer
4)
Total capital
buffers Tota l
Common Equity Tier 1 (CET1) capital 66,712 37,062 2,217 7,412 0 46,692 113,404
Tier 1 (T1) Capital 88,950 37,062 2,217 7,412 0 46,692 135,642
Total own funds 118,600 37,062 2,217 7,412 0 46,692 165,292
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
1)
Act on Credit Institutions (610/2014), Sect 10:3 §, and the EU Capital Requirements
Regulation (575/2013; CRR) and Directive (2013/36/EU; CRD IV). Valid from 1 January 2015.
2)
Act on Credit Institutions (610/2014) Sect 10:4-6 § and the EU Capital Requirements
Regulation (575/2013; CRR) and Directive (2013/36/EU; CRD IV). On 16 December 2022
(16 December 2021), the Board of Financial Supervisory Authority (FIN-FSA) decided not to
set countercyclical capital buffer requirement for credit exposures allocated to Finland. The
institution-specific countercyclical capital buffer requirement is determined on the basis of
the geographical distribution of the exposures. For MuniFin Group it is 0.81% (0.15%).
3)
Other Systemically Important Institutions additional capital requirements: Act on Credit
Institutions (610/2014) Sect 10:8 § and the EU Capital Requirements Regulation (575/2013;
CRR) and Directive (2013/36/EU; CRD IV). Additional capital requirement (O-SII) for MuniFin
Group is 0.5% (0.5%). The decision of the Board of FIN-FSA on 27 June 2022, effective
immediately.
4)
Act on Credit Institutions (610/2014) Sect 10:6a § and the EU Capital Requirements
Regulation (575/2013; CRR) and Directive (2013/36/EU; CRD IV). On 6 April 2020, the
FIN-FSA made a decision to remove the additional capital requirement determined on the
basis of the structural characteristics of the financial system (systemic risk buffer) from
Finnish credit institutions. The aim of the decision was to mitigate the negative effects of
the COVID-19 pandemic on the stability of the financial markets and to promote the ability
of credit institutions to finance the economy. The decision entered into force immediately.
By the end of the financial year, the FIN-FSA had not imposed a new systemic risk buffer for
the MuniFin Group. The systemic risk buffer and the O-SII additional capital requirement are
parallel buffers, of which the greater is applied.
ECB has imposed a bank-specific Pillar 2 Requirement (P2R) of 2% on MuniFin Group as
part of the annual Supervisory Review and Evaluation Process (SREP). Including this P2R
requirement, the total SREP capital requirement ratio (TSCR) was 10% (10.25%) at the end of
December 2022. The minimum level of total capital ratio was 13.81% (13.40%) including P2R
and other additional capital buffers.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Table 2. Own Funds
(EUR 1,000) 31 Dec 2022 31 Dec 2021
Share capital 42,583 42,583
Reserve for invested non-restricted equity 40,366 40,366
Retained earnings 1,533,535 1,416,916
Fair value reserve -3,052 13,994
Other reserves 277 277
Foreseeable dividend -67,580 -40,236
Accrued interest net of deferred taxes of AT1 capital loan treated as equity - -9,459
Common Equity Tier 1 (CET1) capital before regulatory adjustments 1,546,129 1,464,442
Intangible assets -8,831 -12,296
Deferred tax assets that rely on future profitability and do not arise from temporary differences -763 -
Deductions due to prudential filters on Common Equity Tier 1 capital -54,925 -43,876
Common Equity Tier 1 (CET1) capital 1,481,610 1,408,270
Instruments included in Additional Tier 1 capital - 347,454
Additional Tier 1 (AT1) capital - 347,454
Tier 1 (T1) capital 1,481,610 1,755,723
Tier 2 (T2) capital - -
Total own funds 1,481,610 1,755,723
Common Equity Tier 1 capital includes the profit for the
financial year, which has been subject to a financial review
by the external auditor, and therefore can be included in
CET1 capital on the basis of permission granted by the ECB
in accordance with the Capital Requirements Regulation.
Deductions due to prudential filters on CET1 capital are made
up of MuniFin’s debt value adjustment (DVA) and additional
valuation adjustment (AVA). In addition, the amount of
foreseeable dividend has been deducted from CET1 capital.
Change in own credit risk is not included in the own funds
(CRR Art. 33).
MuniFin Group redeemed its Additional Tier 1 capital
instrument in April 2022. The repayment decreased Tier 1
capital by EUR 347 million. A more detailed description of
AT1 capital instrument is included in the Parent Company’s
Financial Statements in Note 35 Subordinated liabilities.
Table 3. Consolidated key figures for capital adequacy
31 Dec 2022 31 Dec 2021
CET1 capital ratio, % 97.60 94.99
Tier 1 capital ratio, % 97.60 118.43
Total capital ratio, % 97.60 118.43
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The capital requirement for credit risk is calculated using the
standardised approach.
When calculating the capital requirements for market risk,
only foreign exchange risk is taken into account as the
Group does not have a trading book nor share or commodity
positions. As foreign exchange risk is hedged by swapping
all currency denominated funding and investments into
euros, the Group’s foreign exchange position is very small.
On 31 December 2022, the FX net position was EUR
4.8 million (EUR 1.4 million), which is less than 2% of total
own funds. There was no capital requirement for market risk
since the FX net position did not exceed 2% of the total own
funds (CRR 575/2013 Art. 351) at the end of financial year or
comparison period.
Guarantees granted by the Municipal Guarantee Board for
certain derivative counterparties are not taken into account in
credit valuation adjustment risk.
The capital requirement for operational risk is calculated
using the basic indicator approach.
31 Dec 2022 31 Dec 2021
(EUR 1,000) Capital requirement Risk exposure amount Capital requirement Risk exposure amount
Credit and counterparty risk, standardised approach 41,727 521,592 42,524 531,547
Exposures to central governments or central banks - 0 - 0
Exposures to regional governments or local authorities 419 5,240 451 5,634
Exposures to public sector entities 639 7,983 705 8,807
Exposures to multilateral development banks - 0 - 0
Exposures to institutions 26,800 335,004 23,422 292,771
Exposures to corporates 3,297 41,210 6,038 75,471
Exposures in the form of covered bonds 8,723 109,041 9,734 121,670
Other items 1,849 23,113 2,176 27,194
Market risk - - - -
Credit valuation adjustment risk (CVA VaR), standard method 37,644 470,552 39,549 494,362
Operational risk, basic indicator approach 42,071 525,892 36,527 456,587
Tot al 121,443 1,518,036 118,600 1,482,496
The capital requirement for counterparty risk is EUR 5,640 thousand (EUR 4,727 thousand).
Table 4. Consolidated minimum requirement for own funds
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Table 5. Consolidated exposure by class
31 Dec 2022
(EUR 1,000)
EXPOSURE CLASSES
On-balance
sheet exposure
Off-balance
sheet exposure
Derivatives
exposure Total exposure
Average exposure
amount over
the period
Risk exposure
amount
Exposures to central governments or central banks 8,294,139 - - 8,294,139 9,206,789 0
Exposures to regional governments or local authorities 14,615,347 845,466 22,881 15,483,694 15,456,426 5,240
Exposures to public sector entities 293,300 - - 293,300 317,351 7,983
Exposures to multilateral development banks 108,801 - - 108,801 124,784 0
Exposures to international organisations 121,432 - - 121,432 127,218 0
Exposures to institutions 1,278,256 - 635,051 1,913,306 1,892,380 335,004
Exposures to corporates 5,600,553 1,618,498 89,662 7,308,714 7,621,870 41,210
Exposures secured by mortgages on immovable property 10,874,824 - - 10,874,824 10,570,175 0
Exposures in default 7,092 - - 7,092 79,266 0
Exposures in the form of covered bonds 1,090,411 - - 1,090,411 1,042,511 109,041
Other items 26,304 - - 26,304 26,725 23,113
Tot al 42,310,459 2,463,964 747,594 45,522,018 46,465,494 521,592
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
31 Dec 2021
(EUR 1,000)
EXPOSURE CLASSES
On-balance
sheet exposure
Off-balance
sheet exposure
Derivatives
exposure Total exposure
Average exposure
amount over
the period
Risk exposure
amount
Exposures to central governments or central banks 8,636,433 - - 8,636,433 8,503,878 0
Exposures to regional governments or local authorities 14,297,717 906,117 323,486 15,527,320 15,431,645 5,634
Exposures to public sector entities 342,672 - - 342,672 390,671 8,807
Exposures to multilateral development banks 152,387 - - 152,387 153,403 0
Exposures to international organisations 143,579 - - 143,579 147,620 0
Exposures to institutions 1,285,401 - 547,272 1,832,673 1,821,127 292,771
Exposures to corporates 6,457,680 1,682,251 279,398 8,419,329 8,544,959 75,471
Exposures secured by mortgages on immovable property 10,208,300 - - 10,208,300 9,837,166 0
Exposures in default 130,053 4,506 - 134,559 142,628 0
Exposures in the form of covered bonds 1,216,705 - - 1,216,705 1,305,877 121,670
Other items 27,232 - - 27,232 26,675 27,194
Tot al 42,898,158 2,592,873 1,150,157 46,641,188 46,305,650 531,547
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Table 6. Leverage ratio
CONSOLIDATED LEVERAGE RATIO
(EUR 1,000) 31 Dec 2022 31 Dec 2021
Tier 1 (T1) capital 1,481,610 1,755,723
Total exposure 12,777,216 13,715,604
Leverage ratio, % 11.60 12.80
CONSOLIDATED EXPOSURES
(EUR 1,000) 31 Dec 2022 31 Dec 2021
On-balance sheet exposures (excl. derivatives and intangible assets) 42,601,459 42,875,215
Derivatives exposure 864,243 1,181,445
Off-balance sheet exposure 1,164,571 1,227,349
Excluded exposures of public development credit institutions (promotional loans) -31,853,057 -31,568,405
Tot al 12,777,216 13,715,604
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
BREAKDOWN OF CONSOLIDATED ON-BALANCE SHEET EXPOSURE EXCLUDING DERIVATIVES AND EXEMPTED EXPOSURES
(EUR 1,000)
31 Dec 2022
Leverage ratio
exposure value
31 Dec 2021
Leverage ratio
exposure value
Covered bonds 1,090,411 1,216,705
Exposures treated as sovereigns 9,116,446 9,618,861
Exposures to regional governments, multilateral development banks, international organisations and public sector entities not treated as sovereigns 66,117 72,202
Institutions 1,278,256 1,285,401
Secured by mortgages of immovable properties - -
Corporate 335,439 336,701
Exposures in default - -
Other exposures 35,135 16,585
Tot al 11,921,804 12,546,455
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 3. Parent Company's capital adequacy position
Common Equity Tier 1 capital includes the profit for the
financial year, which has been subject to a financial review
by the external auditor, and therefore can be included in
CET1 capital on the basis of permission granted by the ECB
in accordance with the Capital Requirements Regulation.
Deductions due to prudential filters on CET1 capital are
made up of MuniFin’s debt value adjustment (DVA) and
additional valuation adjustment (AVA). In addition, the amount
of foreseeable dividend has been deducted from CET1
capital.
Change in own credit risk is not included in the own funds
(CRR Art. 33).
MuniFin Group redeemed its Additional Tier 1 capital
instrument in April 2022. The repayment decreased Tier 1
capital by EUR 350 million. A more detailed description of
AT1 capital instrument is included in the Parent Company’s
Financial Statements in Note 35 Subordinated liabilities.
No t e 3. P ar en t Compan y’s c apital adequacy
position
Table 1. Own funds
(EUR 1,000) 31 Dec 2022 31 Dec 2021
Share capital 43,008 43,008
Reserve for invested non-restricted equity 40,743 40,743
Retained earnings 1,532,647 1,404,148
Fair value reserve -3,052 13,994
Other reserves 277 277
Foreseeable dividend -67,580 -40,236
Common Equity Tier 1 (CET1) capital before regulatory adjustments 1,546,042 1,461,934
Intangible assets -8,837 -12,305
Deferred tax assets that rely on future profitability and do not arise from temporary differences -763 -
Deductions due to prudential filters on Common Equity Tier 1 capital -54,925 -43,876
Common Equity Tier 1 (CET1) capital 1,481,518 1,405,753
Instruments included in Additional Tier 1 capital - 349,878
Additional Tier 1 (AT1) capital - 349,878
Tier 1 (T1) capital 1,481,518 1,755,631
Tier 2 (T2) capital - -
Total own funds 1,481,518 1,755,631
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Table 2. Key figures for capital adequacy
31 Dec 2022 31 Dec 2021
CET1 capital ratio, % 99.21 97.00
Tier 1 capital ratio, % 99.21 121.14
Total capital ratio, % 99.21 121.14
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
31 Dec 2022 31 Dec 2021
(EUR 1,000) Capital requirement Risk exposure amount Capital requirement Risk exposure amount
Credit and counterparty risk, standardised approach 41,811 522,644 42,604 532,547
Exposures to central governments or central banks - 0 - 0
Exposures to regional governments or local authorities 419 5,240 451 5,634
Exposures to public sector entities 639 7,983 705 8,807
Exposures to multilateral development banks - 0 - 0
Exposures to institutions 26,784 334,800 23,410 292,622
Exposures to corporates 3,297 41,210 6,038 75,471
Exposures in the form of covered bonds 8,723 109,041 9,734 121,670
Equity exposure 131 1,639 131 1,639
Other items 1,818 22,729 2,136 26,704
Market risk - - - -
Credit valuation adjustment risk (CVA VaR), standardised method 37,644 470,552 39,549 494,362
Operational risk, basic indicator approach 40,014 500,171 33,788 422,344
Tot al 119,469 1,493,367 115,940 1,449,252
The capital requirement for counterparty risk is EUR 5,640 thousand (EUR 4,727 thousand).
Table 3. Minimum requirement for own funds
The capital requirement for credit risk is calculated using the
standardised approach.
When calculating the capital requirements for market risk,
only foreign exchange risk is taken into account as MuniFin
does not have a trading book nor share or commodity
positions. As foreign exchange risk is hedged by swapping
all currency denominated funding and investments into
euros, the Company’s foreign exchange position is very
small. On 31 December 2022, the FX net position was
EUR 4.8 million (EUR 1.4 million), which is less than 2% of total
own funds. There was no capital requirement for market risk
since the FX net position did not exceed 2% of the total own
funds (CRR 575/2013 Art. 351) at the end of financial year or
comparison period.
Guarantees granted by the Municipal Guarantee Board for
certain derivative counterparties are not taken into account in
credit valuation adjustment risk.
The capital requirement for operational risk is calculated
using the basic indicator approach.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Table 4. Exposure by class
31 Dec 2022
(EUR 1,000)
EXPOSURE CLASSES
On-balance
sheet exposure
Off-balance
sheet exposure
Derivatives
exposure Total exposure
Risk exposure
amount
Exposures to central governments or central banks 8,294,139 - - 8,294,139 0
Exposures to regional governments or local authorities 14,615,347 845,466 22,881 15,483,694 5,240
Exposures to public sector entities 293,300 - - 293,300 7,983
Exposures to multilateral development banks 108,801 - - 108,801 0
Exposures to international organisations 121,432 - - 121,432 0
Exposures to institutions 1,277,238 - 635,051 1,912,288 334,800
Exposures to corporates 5,600,553 1,618,498 89,662 7,308,714 41,210
Exposures secured by mortgages on immovable property 10,874,824 - - 10,874,824 0
Exposures in default 7,092 - - 7,092 0
Exposures in the form of covered bonds 1,090,411 - - 1,090,411 109,041
Equity exposures 656 - - 656 1,639
Other items 25,912 - - 25,912 22,729
Tot al 42,309,706 2,463,964 747,594 45,521,265 522,644
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
31 Dec 2021
(EUR 1,000)
EXPOSURE CLASSES
On-balance
sheet exposure
Off-balance
sheet exposure
Derivatives
exposure Total exposure
Risk exposure
amount
Exposures to central governments or central banks 8,636,433 - - 8,636,433 0
Exposures to regional governments or local authorities 14,297,717 906,117 323,486 15,527,320 5,634
Exposures to public sector entities 342,672 - - 342,672 8,807
Exposures to multilateral development banks 152,387 - - 152,387 0
Exposures to international organisations 143,579 - - 143,579 0
Exposures to institutions 1,284,655 - 547,272 1,831,927 292,622
Exposures to corporates 6,457,680 1,682,251 279,398 8,419,329 75,471
Exposures secured by mortgages on immovable property 10,208,300 - - 10,208,300 0
Exposures in default 130,053 4,506 - 134,559 0
Exposures in the form of covered bonds 1,216,705 - - 1,216,705 121,670
Equity exposures 656 - - 656 1,639
Other items 26,706 - - 26,706 26,704
Tot al 42,897,542 2,592,873 1,150,157 46,640,572 532,547
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Municipality Finance Group
Consolidated Financial Statements
1 January–31 December 2022
61 Consolidated Financial Statements (IFRS)
62 Consolidated Income Statement
63 Consolidated Statement of Comprehensive Income
64 Consolidated Statement of Financial Position
66 Consolidated Statement of Changes in Equity
68 Consolidated Statement of Cash Flows
69 Notes to the Consolidated Financial Statements
223 Parent Company’s Financial Statements (FAS)
224 Parent Company’s Income Statement
225 Parent Company’s Balance Sheet
228 Parent Company’s Statement of Cash Flows
229 Notes to the Parent Company’s Financial Statements
339 Signatures to the Report of the Board of Directors and the Financial Statements
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Konsernitilinpäätös
Consolidated
Financial Statements
C ons olida t ed Financial
Statements (IFRS)
Consolidated Income Statement
Cons olida t ed Income
Statement
(EUR 1,000) Note Jan–Dec 2022 Jan–Dec 2021
Interest and similar income (3) 711,740 503,536
Interest and similar expense (3) -470,585 -223,339
Net interest income 241,155 280,197
Commission income (4) 2,302 2,126
Commission expense (4) -5,517 -5,056
Net income from securities and foreign exchange transactions (5) 8,140 24,095
Net income on financial assets at fair value through other comprehensive income (7) -149 -
Net income from hedge accounting (8, 25) 36,444 4,823
Other operating income (10) 90 95
Administrative expenses (11) -37,361 -34,722
Depreciation and impairment on tangible and intangible assets (12) -10,423 -16,208
Other operating expenses (13) -19,774 -15,568
Credit loss and impairments on financial assets (14) 118 -104
Net operating profit 215,024 239,678
Income tax expense (15) -43,023 -48,073
Profit for the financial year 172,001 191,605
The accompanying notes are an integral part of the Financial Statements.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
(EUR 1,000) Note Jan–Dec 2022 Jan–Dec 2021
Profit for the financial year 172,001 191,605
Components of other comprehensive income
Items not to be reclassified to income statement in subsequent periods
Net change in fair value due to changes in own credit risk on financial liabilities designated at fair value through profit or loss (6) -184 400
Net change in Cost-of-Hedging (25) -15,166 -2,504
Items to be reclassified to income statement in subsequent periods
Net change in fair value of financial assets at fair value through other comprehensive income (7) -5,961 -672
Net change in expected credit loss of financial assets at fair value through other comprehensive income (26) 3 0
Taxes related to components of other comprehensive income 4,262 555
Total components of other comprehensive income -17,046 -2,222
Total comprehensive income for the financial year 154,955 189,383
The accompanying notes are an integral part of the Financial Statements.
Consolidated Statement of Comprehensive Income
Cons olida t ed Sta t emen t o f
Comprehensive Income
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
(EUR 1,000) Note 31 Dec 2022 31 Dec 2021
Assets
Cash and balances with central banks (20) 2 8,399,045
Loans and advances to credit institutions (21) 9,625,488 1,417,310
Loans and advances to the public and public sector entities (22) 29,144,361 29,214,043
Debt securities (23) 4,786,768 4,841,428
Shares and participations - -
Derivative contracts (19, 24) 2,707,103 1,999,676
Intangible assets (27, 29) 8,831 12,296
Tangible assets (28, 29) 5,062 7,491
Other assets (30) 1,234,810 256,117
Accrued income and prepayments (31) 223,104 212,655
Deferred tax assets (32) 763 -
Total assets (16, 17, 18) 47,736,293 46,360,060
Consolidated Statement of Financial Position
Cons olida t ed Sta t emen t
of Financial Position
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
(EUR 1,000) Note 31 Dec 2022 31 Dec 2021
Liabilities and equity
Liabilities
Liabilities to credit institutions (33, 36) 2,332,623 2,801,016
Liabilities to the public and public sector entities (34, 36) 2,529,585 3,324,685
Debt securities issued (35, 36) 35,592,065 35,327,525
Derivative contracts (19, 24) 4,616,111 2,224,294
Provisions and other liabilities (37) 593,848 349,331
Accrued expenses and deferred income (38) 166,635 181,732
Deferred tax liabilities (32) 291,717 289,887
Total liabilities (16, 17, 18) 46,122,584 44,498,470
Equity
Share capital (39) 42,583 42,583
Reserve fund (39) 277 277
Fair value reserve of investments (39) -4,457 309
Own credit revaluation reserve (39) -83 64
Cost-of-Hedging reserve (39) 1,488 13,621
Reserve for invested non-restricted equity (39) 40,366 40,366
Retained earnings (39) 1,533,535 1,416,916
Total equity attributable to Parent Company equity holders 1,613,709 1,514,136
Other equity instruments issued (39) - 347,454
Total equity 1,613,709 1,861,590
Total liabilities and equity 47,736,293 46,360,060
The accompanying notes are an integral part of the Financial Statements.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Consolidated Statement of Changes in Equity
(EUR 1,000)
Total equity attributable to Parent Company equity holders
Other equity
instruments
issued
Total
equity
Share
capital
Reserve
fund
Fair value
reserve of
investments
Own
credit
revaluation
reserve
Cost-of-
Hedging
reserve
Reserve for
invested
non-restricted
equity
Retained
earnings Tot a l
Equity at 31 December 2020 42,583 277 847 -255 15,624 40,366 1,258,224 1,357,666 347,454 1,705,120
Interest paid on Additional Tier 1 capital instrument - - - - - - -12,600 -12,600 - -12,600
Dividends paid for 2020 - - - - - - -20,313 -20,313 - -20,313
Profit for the financial year - - - - - - 191,605 191,605 - 191,605
Components of other comprehensive income net of tax
Items not to be reclassified to income statement in subsequent
periods
Net change in fair value due to changes in own credit risk on
financial liabilities designated at fair value through profit or loss - - - 320 - - - 320 - 320
Net change in Cost-of-Hedging - - - - -2,004 - - -2,004 - -2,004
Items to be reclassified to income statement in subsequent periods
Net change in fair value of financial assets at fair value through other
comprehensive income - - -538 - - - - -538 - -538
Net change in expected credit loss of financial assets at fair value
through other comprehensive income - - 0 - - - - 0 - 0
Equity at 31 December 2021 42,583 277 309 64 13,621 40,366 1,416,916 1,514,136 347,454 1,861,590
Cons olida t ed Sta t emen t o f
Changes in E quity
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
(EUR 1,000)
Total equity attributable to Parent Company equity holders
Other equity
instruments
issued
Total
equity
Share
capital
Reserve
fund
Fair value
reserve of
investments
Own
credit
revaluation
reserve
Cost-of-
Hedging
reserve
Reserve for
invested
non-restricted
equity
Retained
earnings Tot a l
Redemption of Additional Tier 1 capital instrument - - - - - - -2,546 -2,546 -347,454 -350,000
Interest paid on Additional Tier 1 capital instrument - - - - - - -12,600 -12,600 - -12,600
Dividends paid for 2021 - - - - - - -40,236 -40,236 - -40,236
Profit for the financial year - - - - - - 172,001 172,001 - 172,001
Components of other comprehensive income net of tax
Items not to be reclassified to income statement in subsequent
periods
Net change in fair value due to changes in own credit risk on
financial liabilities designated at fair value through profit or loss - - - -147 - - - -147 - -147
Net change in Cost-of-Hedging - - - - -12,133 - - -12,133 - -12,133
Items to be reclassified to income statement in subsequent periods
Net change in fair value of financial assets at fair value through other
comprehensive income - - -4,769 - - - - -4,769 - -4,769
Net change in expected credit loss of financial assets at fair value
through other comprehensive income - - 2 - - - - 2 - 2
Equity at 31 December 2022 42,583 277 -4,457 -83 1,488 40,366 1,533,535 1,613,709 - 1,613,709
The accompanying notes are an integral part of the Financial Statements.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Consolidated Statement of Cash Flows
(EUR 1,000) Jan–Dec 2022 Jan–Dec 2021
Cash flow from operating activities -7,975,442 2,750,437
Net change in long-term funding 2,063,033 3,085,073
Net change in short-term funding 1,103,027 -354,008
Net change in long-term loans -1,637,350 -1,580,112
Net change in short-term loans -368,992 224,130
Net change in investments -7,919,967 667,724
Net change in collaterals -1,332,255 480,083
Interest on assets 97,307 16,875
Interest on liabilities 93,906 221,595
Other income 54,080 74,355
Payments of operating expenses -61,490 -88,798
Taxes paid -66,742 3,518
Cash flow from investing activities -3,550 -7,747
Acquisition of tangible assets -16 -3
Proceeds from sale of tangible assets 149 226
Acquisition of intangible assets -3,684 -7,970
Cash flow from financing activities -407,887 -37,866
Redemption of AT1 capital instrument -350,000 -
Paid interest on AT1 capital instrument -15,750 -15,750
Dividend paid -40,236 -20,313
Total cash flow from leases -1,902 -1,803
Change in cash and cash equivalents -8,386,879 2,704,824
Cash and cash equivalents at 1 Jan 8,435,504 5,730,680
Cash and cash equivalents at 31 Dec 48,624 8,435,504
Cons olida t ed Sta t emen t o f Cash Flo w s
The accompanying notes are an integral part of the Financial Statements.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
No t es t o the Cons olida t ed
Financial Statements
Notes to the accounting policies and risk management
Note 1. Summary of significant accounting policies
Note 2. Risk management principles and
the Group’s risk position
Notes to the income statement
Note 3. Interest income and expense
Note 4. Fee and commission income and expense
Note 5. Net income from securities and
foreign exchange transactions
Note 6. Financial assets and liabilities designated
at fair value through profit or loss
Note 7. Net income on financial assets at fair value
through other comprehensive income
Note 8. Net income from hedge accounting
Note 9. Impact of the reclassified financial
assets and liabilities
Note 10. Other operating income
Note 11. Administrative expenses
Note 12. Depreciation and impairment on
tangible and intangible assets
Note 13. Other operating expenses
Note 14. Credit losses and impairments on financial assets
Note 15. Income tax expense
Notes to the statement of financial position
Note 16. Financial assets and liabilities
Note 17. Fair values of financial assets and liabilities
Note 18. Breakdown of financial assets and liabilities
at carrying amount by maturity
Note 19. Offsetting financial assets and liabilities
Note 20. Cash and cash equivalents
Note 21. Loans and advances to credit institutions
Note 22. Loans and advances to the public
and public sector entities
Note 23. Debt securities
Note 24. Derivative contracts
Note 25. Hedge accounting
Note 26. Credit risks of financial assets
and other commitments
Note 27. Intangible assets
Note 28. Tangible assets
Note 29. Changes in intangible and tangible
assets during the financial year
Note 30. Other assets
Note 31. Accrued income and prepayments
Note 32. Deferred tax
Note 33. Liabilities to credit institutions
Note 34. Liabilities to the public and public sector entities
Note 35. Debt securities issued
Note 36. Reconciliation of the carrying
amount of the issued debt
Note 37. Provisions and other liabilities
Note 38. Accrued expenses and deferred income
Note 39. Equity
Note 40. Contingent assets and liabilities
Note 41. Collateral given
Note 42. Off-balance-sheet commitments
Note 43. Related-party transactions
Note 44. Salaries and remuneration
Note 45. Events after the reporting period
Notes to the Consolidated Financial Statements
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 1. Summary of significant accounting policies
Notes to the accounting policies and risk management
1. General information on the Group and
the basis of preparation
Municipality Finance Group (referred to as MuniFin Group or
the Group) consists of Municipality Finance Plc (referred to
as MuniFin or the Parent Company) and Financial Advisory
Services Inspira Ltd (referred to as Inspira or the Subsidiary).
The Group’s Parent Company is a Finnish public limited
liability company established under Finnish legislation and
domiciled in Helsinki. Its registered address is Jaakonkatu 3
A, 00100 Helsinki. The Subsidiary’s domicile is Helsinki and
registered address Jaakonkatu 3 A, 00100 Helsinki. A copy
of the Consolidated Financial Statements is available online
at www.munifin.fi or from the Group’s Parent Company at
Jaakonkatu 3 A, 00100 Helsinki.
The Board of Directors of MuniFin has approved these
Financial Statements for disclosure at its meeting on
10 February 2023. According to the Finnish Limited Liability
Companies Act, shareholders may accept or reject the
Financial Statements at the Annual General Meeting held
after the publication. The Annual General Meeting may also
decide to alter the Financial Statements.
These Consolidated Financial Statements have been
prepared in accordance with International Financial
Reporting Standards (IFRS) and in compliance with IAS and
IFRS standards and the SIC and IFRIC interpretations in force
on 31 December 2022. International Financial Reporting
Standards refer to the standards and their interpretations
approved for application in the EU in accordance with the
procedure stipulated in EU Regulation (EC) No. 1606/2002
and embodied in the Finnish Accounting Act and the decrees
enacted under it. In addition, the notes to the Consolidated
Financial Statements comply with the requirements of the
Finnish accounting and corporate legislation complementing
the IFRS requirements.
Capital adequacy information in compliance with Part Eight of
the EU Capital Requirements Regulation ((EU) No 575/2013)
and its amending regulation ((EU) No 876/2019) is presented
in a Pillar III Disclosure Report which is a separate report
from the Report of the Board of Directors and the Financial
Statements.
The Consolidated Financial Statements have been prepared
under historical cost convention, except for financial assets
and liabilities measured at fair value and hedged items in fair
value hedge accounting for the risk hedged.
The functional currency of the Parent Company is euro.
The notes of the Financial Statements are presented in
thousands of euros. All figures in the notes have been
rounded, so the total of individual figures may differ from the
total figure presented.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
2. Changes in accounting policies and
application of new standards
The Consolidated Financial Statements have been prepared
in accordance with the same accounting policies as in
2021, with the exception of the following new standards,
interpretations and amendments to existing standards that
the Group has applied starting from 1 January 2022.
Onerous Contracts – Costs of Fulfilling a Contract –
Amendments to IAS 37 Provisions, Contingent Liabilities
and Contingent Assets (effective for financial years
beginning on or after 1 January 2022). When an onerous
contract is accounted for based on the costs of fulfilling the
contract, the amendments clarify that these costs comprise
both the incremental costs and an allocation of other direct
costs. The amendment did not have a significant impact on
the Consolidated Financial Statements of MuniFin Group.
Property, Plant and Equipment – Proceeds before
Intended Use – Amendments to IAS 16 Property, Plant and
Equipment (effective for financial years beginning on or after
1 January 2022). Under the amendments, proceeds from
selling items before the related item of PPE is available for
use should be recognised in profit or loss, together with the
costs of producing those items. The amendment did not have
a direct impact on the Consolidated Financial Statements of
MuniFin Group.
Reference to the Conceptual Framework – Amendments to
IFRS 3 Business Combinations (effective for financial years
beginning on or after 1 January 2022). The amendments
update a reference in IFRS 3 and makes further reference
related amendments. The amendment did not have a direct
impact on the Consolidated Financial Statements of MuniFin
Group.
Annual Improvements to IFRS Standards 2018–2020
(effective for financial years beginning on or after 1 January
2022). The annual improvements process provides a
mechanism for minor and non-urgent amendments to IFRSs
to be grouped together and issued in one package annually.
The amendments clarify the following standards:
• IFRS 9 Financial Instruments – Fees in the ‘10 per cent’ test
for derecognition of financial liabilities: This amendment
clarifies that – for the purpose of performing the ‘’10
per cent test’ for derecognition of financial liabilities – in
determining those fees paid net of fees received, a
borrower includes only fees paid or received between the
borrower and the lender, including fees paid or received by
either the borrower or lender on the other’s behalf.
• IFRS 16 Leases – Lease incentives – Example 13. The
amendment removes the illustration of payments from the
lessor relating to leasehold improvements. The example
was not clear as to why such payments are not a lease
incentive.
The amendments did not have a significant impact on the
Consolidated Financial Statements of MuniFin Group.
Other new or amended standards and interpretations that
entered into effect in 2022 did not have a material impact on
the Consolidated Financial Statements.
3. Accounting policies requiring management judgement
and key uncertainty factors related to estimates
In preparing the Financial Statements under IFRS, the Group
management is required to make certain estimates and use
judgement in the application of the accounting policies that
affect the revenue, expenses, assets and liabilities presented
in the Financial Statements.
The key assumptions made by the Group concern key
uncertainty factors pertaining to the future and the estimates
at the financial statement date. These relate to, among other
things, the determination of fair value and the expected credit
losses and impairment of financial assets.
3.1 Management judgement related to the
determination of fair value
The level of management judgement required in establishing
fair value of financial instruments for which there is a
quoted price in an active market is usually minimal. For the
valuation of financial instruments where prices quoted in
active markets are not available, the Group uses valuation
techniques to establish fair value. These valuation
techniques involve some level of management estimation
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
and judgement, the degree of which will depend on the
observability of the input parameters and the instrument’s
complexity. For instruments valued using valuation models
which are standard across the industry and where all
inputs are quoted in active markets, the level of subjectivity
or judgement required is low. The level of subjectivity
and degree of management judgement required is more
significant for those instruments valued using sophisticated
models and where some or all of the inputs are less liquid
or unobservable. Management judgement is required in
the selection and application of appropriate parameters,
assumptions and modelling techniques in particular, where
data is obtained from infrequent market transactions or
extrapolation techniques are applied.
MuniFin Group discloses financial assets and liabilities
according to their fair value hierarchy levels in the notes
to the Financial Statements. Management judgement
is required in determining the hierarchy level to which a
financial instrument should be classified specifically when
the valuation is determined by a number of inputs, of which
some are observable and others are not. Furthermore, the
classification of an instrument can change over time to
reflect changes in input liquidity. The Group also discloses
a sensitivity analysis of the impact on the level 3 financial
instruments by using reasonably possible alternatives for
the unobservable input. The determination of reasonably
possible alternatives requires management judgement.
The valuation methods and controls and quantitative
disclosures with respect to the determination of fair value
as well as the fair value hierarchy levels and sensitivity
analysis are disclosed in Note 17 Fair values of financial assets
and liabilities. The changes in the fair values of financial
instruments impact the income statement line items Net
income from securities and foreign exchange transactions
and Net income from hedge accounting as well as the other
comprehensive income line items Net change in fair value
of financial assets at fair value through other comprehensive
income, Net change in fair value due to changes in own credit
risk on financial liabilities designated at fair value through profit
or loss and Net change in Cost-of-Hedging.
3.2 Management judgement related to the expected
credit losses
The measurement of impairment losses under IFRS 9
across all categories of financial assets requires judgement,
in particular, with the estimation of amount and timing of
future cash flows and collateral values when determining
impairment losses and the assessment of a significant
increase in credit risk. These estimates are driven by a
number of factors, changes in which can result in different
levels of allowances. Expected credit losses are disclosed
in Note 26 Credit risks of financial assets and other
commitments. The changes of the expected credit losses are
recognised under the income statement line Credit loss and
impairments of financial assets.
The Group’s ECL calculations are an output of complex
models with a number of underlying assumptions regarding
the choice of variable inputs and their interdependencies.
Elements of ECL models that are considered accounting
judgements and estimates include:
• The Group’s internal credit grading model, which assigns
probabilities of default (PD) to the individual grades.
• The Group’s criteria for assessing if there has been
a significant increase in credit risk and qualitative
assessment.
• Development of ECL models, including the various
formulas and the choice of inputs.
• Determination of relationships between macroeconomic
scenarios and economic inputs, such as unemployment
levels and collateral values and their effect on PDs, EADs
(Exposures at Default) and LGDs (Loss Given Default).
• Selection of forward-looking macroeconomic scenarios
and their probability weightings, to derive the economic
inputs into the ECL models.
The Group regularly reviews its models in the context of
actual loss experience and adjusts them when necessary.
MuniFin Group finished ECL IT and model development
during the second half of the year 2022. With the
development, changes have been made to the assessment
criteria for significant increase in credit risk (SICR), and to the
models of probability of default (PD) and loss given default
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
(LGD). In addition, macro scenarios were updated to take
into account forward-looking information. Because of this,
the Group recorded an additional discretionary provision
(management overlay) at the end of 2021 to take into account
IT and model changes that will take place in 2022. The
amount of additional discretionary provision was increased at
the end of June 2022. The additional discretionary provision
based on a group-specific assessment and decided by the
Group’s management, was EUR 916 thousand. Since the IT
and model development were finished in the second half of
2022, the additional discretionary provision based on the
group-specific assessment was removed. The additional
provision was recognised under the balance sheet item
Loans and advances to the public and public sector entities.
The additional provision was not allocated to contract level.
3.3 Management judgement related to Russia’s invasion
of Ukraine
MuniFin Group has used management judgement in the
preparation of these Consolidated Financial Statements
regarding the possible impacts of Russia’s invasion of Ukraine
on the Group’s business and risks. Russia’s invasion of
Ukraine has had little effect on the Group’s financial position
and results, as MuniFin Group has no exposures to Russia or
Ukraine. In the first half of 2022, the interest rate and inflation
environment turned to a sharp increase and economic
growth declined due to Russia’s invasion of Ukraine. Despite
the market turbulence, the Group’s funding continued in
the usual manner during the year and the Group had strong
access to capital markets throughout 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. Russia’s invasion of Ukraine
mainly affects the Group’s risks indirectly through market
conditions. Cyberattacks targeted at the Group could also
affect its risks, but the Group has carefully prepared for these.
4. Basis of consolidation
The Consolidated Financial Statements encompass the
Financial Statements of MuniFin, the Parent Company, and
the Subsidiary Financial Advisory Services Inspira Ltd, in
which the Parent Company has control. MuniFin has control
over an investee if it is exposed or has rights to variable
returns from its involvement with the investee and has the
ability to affect those returns through its power over the
investee. Inspira is fully owned by MuniFin and thus the
control is based on votes. Intra-group holdings have been
eliminated by using the acquisition method. Intra-group
transactions, receivables, and liabilities as well as distribution
of profit have been eliminated in the Consolidated Financial
Statements.
5. Segment reporting
The Group’s line of business is credit institution operations
and providing financial services. The Group operates in a
single segment, which also forms the basis of reporting to
the Group’s chief operating decision maker. Group-level
information on products and services are presented in Note
3 Interest income and expense and 4 Commission income and
expense. The Group has not broken down income or assets
based on geographical areas due to operating in Finland only.
The Group regularly monitors the development of the lending
portfolio by customer and the proportion of interest paid by
each customer of the total interest income. The largest cities
measured by population and non-profit companies focused
on rental housing development are the largest borrowers.
There is no customer group that accumulates over 10% of
Group’s total interest income. The chief operating decision
maker of the Group is the Chief Executive Officer of the
Parent Company as he is responsible for allocating resources
and assessing the performance of the Group.
6. Translation of foreign currency denominated items
Transactions denominated in a foreign currency have been
recorded in euro, the Group’s Parent Company’s functional
currency, using the exchange rates of the transaction dates.
On the reporting date, monetary receivables and liabilities
denominated in a foreign currency have been translated into
euros using the European Central Bank’s average exchange
rate of that date. The resulting translation differences are
recorded in the income statement under Net income from
securities and foreign exchange transactions. The fair value
changes of financial assets denominated in a foreign curren-
cy and classified as fair value through other comprehensive
income are divided into translation differences arising
from changes to the amortised cost of the asset and other
changes in carrying amount. Translation differences related
to changes in amortised cost are recognised in the income
statement, while other changes in carrying amount are
recognised in other comprehensive income.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
7. Classification, recognition and measurement of
financial instruments
The classification of financial instruments at initial recognition
depends on their contractual terms and for financial assets
on the business model for managing the instruments.
Financial instruments are initially measured at fair value
taking into account transaction costs that are incremental
and directly attributable to the acquisition cost or issue of
the financial asset or liability, unless the financial asset or
liability is measured at fair value through profit or loss. Trade
receivables are measured at the transaction price.
7.1 Classification and measurement of financial assets
The classification of financial assets is dependent on:
• the business model applied to managing the financial
assets and
• the characteristics of their contractual cash flows.
Financial assets are reclassified only when the business
model for managing financial assets is changed. On initial
recognition, a financial asset is classified as amortised cost
(AC), fair value through other comprehensive income (FVOCI)
or fair value through profit or loss (FVTPL). Certain financial
assets, that otherwise meet the requirements to be classified
as amortised cost or fair value through other comprehensive
income, can be irrevocably designated to be measured
at fair value through profit or loss by applying fair value
option (FVO).
7.1.1 Business model assessment
The Group has determined its business models at the
level that best reflects how it manages groups of financial
assets to achieve its business objective. Business model
is not assessed on an instrument-by-instrument basis, but
at a higher level of aggregation and is based on observable
factors such as:
• How the performance of the business model and the
financial assets held within that business model are
evaluated and reported to the Group’s key management
personnel.
• The risks that affect the performance of the business
model and the financial assets held within that business
model and, in particular, the way those risks are managed.
• How managers of the business are compensated, for
example, whether the compensation is based on the fair
value of the assets managed or on the contractual cash
flows collected.
• The expected frequency, value and timing of sales.
The business model assessment is based on reasonably
expected scenarios without taking “worst case” or “stress
case” scenarios into account. If cash flows after initial
recognition are realised in a way that is different from original
expectations, the Group does not change the classification
of the remaining financial assets held in that business model
but incorporates such information when assessing newly
originated or newly purchased financial assets going forward.
MuniFin Group has identified two different business models
for managing financial assets: the first business model is
based on holding financial assets and collecting contractual
cash flows. The other business model is based on collecting
contractual cash flows and selling financial assets.
The Group’s lending is held within a business model whose
objective is to hold financial assets in order to collect
contractual cash flows. In addition, financial assets such
as bank account balances, bank deposits, CSA collateral
receivables and reverse repurchase agreements are held
within a business model whose objective is to hold financial
assets in order to collect contractual cash flows.
Liquidity investments are held within a business model
whose objective is achieved by both collecting contractual
cash flows and selling financial assets. Thus, based on the
business model the financial assets are classified as fair value
through other comprehensive income (FVOCI).
7.1.2 The Solely Payment of Principal and Interest (SPPI) test
As a second step of its classification process the Group
assesses the contractual terms of financial assets to identify
whether they meet the SPPI test. In the SPPI test, the
contractual cash flows of the financial asset are assessed.
In order to pass the SPPI test, the cash flows need to consist
solely of payments of principal and interest.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
“Principal” for the purpose of this test is defined as the fair
value of the financial asset at initial recognition and it may
change over the life of the financial asset, for example if there
are repayments of principal or amortisation of the premium or
discount.
The most significant elements of interest within a lending
arrangement are typically the consideration for the time value
of money and credit risk. To make the SPPI assessment,
the Group applies judgement and considers relevant
factors such as the currency in which the financial asset is
denominated, and the period for which the interest rate is set.
Financial assets are required to be classified at fair value
through profit or loss, if:
• they contain contractual terms that are unrelated to a basic
lending agreement and
• give rise to cash flows that are not solely payments of
principal and interest on the amount outstanding.
These contractual terms are required to introduce a
more than de minimis exposure to risks or volatility in the
contractual cash flows, in order for the financial asset to
fail the SPPI test. Some of the Group’s structured lending
agreements do not fulfil the SPPI criteria and are thus
classified mandatorily at fair value through profit or loss.
As a result of the requirements in the SPPI test, embedded
derivatives in financial assets would be classified at fair
value through profit or loss. IFRS 9 does not allow for the
separation of embedded derivatives from financial asset host
contracts.
7.1.3 Amortised cost
A financial asset is classified at amortised cost if it meets both
of the following conditions and is not designated at fair value
through profit or loss:
• The asset is held within a business model whose objective
is to hold assets to collect contractual cash flows; and
• The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
Financial assets in this category are initially recognised at
fair value adjusted by directly attributable transaction costs.
Subsequently, these assets are measured at amortised
cost using the effective interest method. The measurement
of impairment is based on the expected credit loss model
described in Section 9. Impairment of Financial assets.
Interest received on financial assets at amortised cost is
recognised in the income statement under Interest and
similar income. The expected credit losses are recognised in
the income statement under Credit loss and impairments on
financial assets.
Based on the business model assessment, financial assets
that are classified at amortised cost include the Group’s
lending portfolio consisting of short-term and long-term
lending, money market deposits, reverse repurchase
agreements, bank account balances and CSA collateral
receivables. Not all aforementioned assets can be classified
at amortised cost as required by the business model as
certain lending agreements fail the test of solely payments of
principal and interest. These structured lending agreements
are classified mandatorily at fair value through profit or loss.
As a rule, the Group hedges fixed rate lending and lending
at long-term reference rates and applies fair value hedge
accounting to these. Lending that is designated as hedged
item in a hedge relationship is measured at fair value for the
risk hedged. Hedge accounting principles are described in
Section 10. Hedge accounting of this note. Note 25 Hedge
accounting describes how hedge accounting has been
implemented in the Group.
7.1.4 Fair value through other comprehensive income
A financial asset that is a debt instrument is classified at fair
value through other comprehensive income if it meets both
of the following conditions and is not designated at fair value
through profit or loss:
• The asset is held within a business model whose objective
is achieved by both collecting contractual cash flows and
selling financial assets; and
• The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Financial assets in this category are initially recognised at
fair value adjusted by directly attributable transaction costs.
Subsequent changes in fair value are recognised through the
other comprehensive income and are presented in the Fair
value reserve adjusted by deferred tax. The measurement
of impairment is based on the expected credit loss model
described in Section 9. Impairment of Financial assets.
Foreign exchange gains and losses on debt securities
denominated in foreign currencies are recognised in the
income statement under Net income from securities and
foreign exchange transactions. Interest received on debt
securities is recognised in the income statement under
Interest and similar income. The expected credit losses
are recognised in the income statement under Credit loss
and impairments on financial assets. Upon disposal, the
cumulative gain or loss previously recognised in the other
comprehensive income is reclassified from the fair value
reserve in equity to the income statement and presented
under Net income on financial assets at fair value through
other comprehensive income.
On initial recognition of an equity investment that is not
held for trading, the Group may irrevocably elect to present
subsequent changes in fair value in the other comprehensive
income. When this election is made, amounts presented
in the other comprehensive income are not subsequently
transferred to the income statement. Dividends on such
investments are recognised in the income statement unless
the dividend clearly represents a partial recovery of the
initial investment. This election is made on an investment-by-
investment basis. The Group classifies all of its investments in
equity instruments at fair value through profit or loss.
Based on the business model assessment, investments
of the Group’s liquidity portfolio are classified at fair value
through other comprehensive income. The majority of the
liquidity portfolio consists of fixed and floating rate debt
securities and investments in commercial papers. These
investments pass the SPPI test.
7.1.5 Fair value through profit or loss
A financial asset is classified at fair value through profit or
loss unless it is classified at amortised cost or at fair value
through other comprehensive income. In MuniFin Group, this
category comprises the following assets:
• derivative assets,
• debt instruments with contractual terms that do not
represent solely payments of principal and interest on the
principal amount outstanding,
• investments in equity instruments and
• financial assets designated at fair value through profit or
loss on initial recognition.
Financial assets in this category are initially recognised at
fair value, with transaction costs recognised in the income
statement as incurred. Subsequently, these assets are
measured at fair value through profit or loss. Fair value
changes are recorded in the income statement under
Net income from securities and foreign exchange transactions.
Interest received on financial assets at fair value through
profit or loss is recognised in the income statement under
Interest and similar income.
7.1.6 Designated at fair value through profit or loss
On initial recognition, the Group can designate certain
financial assets at fair value through profit or loss (Fair
Value Option, FVO). This irrevocable designation is made if
doing so eliminates or significantly reduces measurement
or recognition inconsistencies (i.e., eliminates accounting
mismatch) which would otherwise arise from measuring
financial assets on different bases. Financial assets that
the Group has designated at fair value through profit or loss
include debt securities of the liquidity portfolio and individual
lending agreements of which the interest rate risk and/or
foreign exchange risk is hedged with interest rate and cross
currency interest rate swaps.
7.2 Classification and measurement of financial liabilities
On initial recognition, a financial liability is classified at
amortised cost (AC) or fair value through profit or loss
(FVTPL). Certain financial liabilities, that otherwise meet
the requirements to be classified at amortised cost, can be
irrevocably designated at fair value through profit or loss by
applying the fair value option (FVO). Financial liabilities are
not reclassified after initial recognition.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
7.2.1 Amortised cost
Financial liabilities are classified at amortised cost, except for:
• derivative liabilities and
• liabilities that are designated at fair value through profit
or loss.
Financial liabilities in this category are initially recognised at
fair value adjusted by directly attributable transaction costs.
Subsequently, these financial liabilities are measured at
amortised cost using the effective interest method. Interest
paid on liabilities is recognised in the income statement under
Interest and similar expense.
Financial liabilities that are classified at amortised cost
include liabilities to credit institutions, liabilities to the public
and public sector entities and debt securities issued. MuniFin
Group applies fair value hedge accounting according to IFRS
9 standard to financial liabilities at amortised cost which have
been hedged. Hedge accounting principles are described
in Section 10. Hedge accounting of this note. Note 25 Hedge
accounting describes how hedge accounting has been
implemented in the Group.
7.2.2 Fair value through profit or loss
A financial liability is classified at fair value through profit or
loss unless it is classified at amortised cost. This category
includes derivative contracts and financial liabilities that are
designated at fair value through profit or loss upon initial
recognition.
Financial liabilities in this category are initially recognised
at fair value. Subsequent changes in fair value are recorded
in the income statement under Net income from securities
and foreign exchange transactions. Interest paid on liabilities
is recognised in the income statement under Interest and
similar expense.
7.2.3 Designated at fair value through profit or loss
On initial recognition, the Group can designate certain
financial liabilities at fair value through profit or loss. This
designation is made:
• if it eliminates or significantly reduces accounting
mismatch or
• if financial liabilities are both managed, and their
performance evaluated on a fair value basis in accordance
with a documented risk management or investment
strategy.
The Group has designated short-term debt instruments
denominated in foreign currencies, which have been hedged
with FX swaps at fair value through profit or loss. The
designation reduces accounting mismatch which would
otherwise arise between the measurement of the derivative
and the financial liability. In addition, the Group has also
designated certain financial liabilities at fair value through
profit or loss. These consist of financial liabilities, which have
been hedged according to the Group’s risk management
policy, but to which fair value hedge accounting in
accordance with IFRS 9 standard is not applied. To eliminate
the accounting mismatch resulting from the economic
hedge, these debt instruments have been designated at fair
value through profit or loss. As a result of the designation all
financial liabilities containing embedded derivatives requiring
separation are classified at fair value through profit or loss.
An embedded derivative is part of a hybrid financial
instrument, which contains a non-derivative host and an
embedded derivative which causes the contractual cash
flows to be modified in a similar way to that of stand-alone
derivative cash flows. If the economic characteristics and
risks of an embedded derivative are not closely related to the
characteristics and risks of the host contract, the embedded
derivative of a debt instrument is required to be separated.
The separated embedded derivative is measured at fair
value through profit or loss. If the fair value of the embedded
derivative cannot be separately measured, the entire hybrid
instrument is designated at fair value through profit or loss.
Debt securities issued by MuniFin can contain interest or
redemption terms with economic characteristics and risks
that are not closely related to the host contract. The Group
hedges all structured interest and redemption terms in
its issued debt securities with offsetting derivatives and
designates them at fair value through profit and loss and thus
the above-mentioned components are not separated from
the host contract.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The fair value changes of financial liabilities designated at
fair value through profit or loss are recorded in the income
statement under Net income from securities and foreign
exchange transactions, except for fair value changes
attributable to changes in the Group’s own credit risk. The
fair value changes of the derivative hedging the financial
liability are recorded in the same income statement line item.
When a financial liability is designated at fair value through
profit or loss, the fair value changes due to changes of the
Group’s credit risk are presented separately in the other
comprehensive income under Net change in fair value due to
changes in own credit risk on financial liabilities designated at
fair value through profit or loss.
The Group applies the income approach to the separation
of fair value changes related to changes in own credit risk
from the fair value changes of the financial liability. For the
majority of financial liabilities designated at fair value through
profit or loss, no market price is available as there is no active
secondary market. The methodology for separation of own
credit risk utilises:
• MuniFin’s benchmark curves,
• cross currency basis spreads and
• credit spreads of MuniFin’s issued debt securities as input.
Based on the aforementioned inputs, valuation curves can
be constructed for various reporting periods for valuing
financial liabilities designated at fair value through profit or
loss. By comparing fair values calculated using the trade
date and reporting date curves, the impact of the change in
own credit risk on the fair value of the financial liability can be
determined.
8. Recognition and derecognition of financial assets and
liabilities
Financial assets are recognised on the statement of financial
position on the settlement day. Financial liabilities are
recognised when the consideration is received. Derivatives
are recognised on the trade date.
Financial assets are derecognised when the contractual
right to the assets expires or when the rights have been
transferred to another party. Financial liabilities are
derecognised when the obligations have been fulfilled.
8.1 Derecognition due to substantial modification of terms
and conditions
The Group derecognises a financial asset, such as a loan
to a customer, when the terms and conditions have been
renegotiated to the extent that, substantially, it becomes a
new loan. Newly recognised loans are classified at stage 1 for
the purposes of measurement of expected credit loss, unless
the Group determines that the modified loan is deemed to
be a credit-impaired financial asset (Purchased or Originated
Credit Impaired, POCI). If the modification does not result in
cash flows that are substantially different, the modification
does not result in derecognition.
If an existing financial liability is replaced by another from the
same lender on substantially different terms or the terms
of the existing liability are substantially modified, such an
exchange or modification is treated as a derecognition of the
original liability and the recognition of a new liability.
9. Impairment on financial assets
The impairment requirements are based on a three-stage
approach to measure expected credit losses (ECL). Financial
assets classified at amortised cost or fair value through
other comprehensive income are in scope for recognising
impairment under the IFRS 9 standard. Finance lease
receivables and off-balance sheet binding loan commitments
are also in scope for recognising impairment due to their
credit risk. For further information on the classification of
financial assets, see Section 7. Classification, recognition and
measurement of financial instruments above.
Impairment of financial assets is calculated based on the
credit loss expected to arise over a 12-month period, unless
there has been a significant increase in credit risk since
origination, in which case the allowance is calculated based
on the expected credit losses over the life of the asset. Both
lifetime and 12-months expected credit losses (ECL) are
calculated on an individual basis. Collective assessment
may be used to determine a possible management overlay
provision.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
9.1 Measurement of ECL
The assets in the scope of the expected credit loss
impairment model are classified into three stages.
• Stage 1 includes assets with no significant increase in
credit risk,
• Stage 2 includes assets with significantly increased
credit risk since origination, and
• Stage 3 includes assets that are credit impaired and
thus fulfil the definition of default.
Default is defined as a situation where the obligor is
more than 90 days past due or the obligor is considered
unlikely to pay their credit obligations for example due
to the obligor’s bankruptcy or distressed restructuring.
The definition of default is in line with the Group’s capital
adequacy calculations and risk management as well as
with that required by international regulators (European
Banking Authority’s (EBA) guidelines on the application of the
definition of default under Article 178 of Regulation (EU) No
575/2013: EBA/GL/2016/07 and EBA/RTS/2016/06).
The provision for stage 1 is equivalent to the credit loss
expected for 12 months. For stages 2 and 3, the provision
is equivalent to the expected credit losses for the entire
lifetime. The Group calculates ECL based on three
probability-weighted scenarios to measure the expected
cash shortfalls. The net present value of the contractual
cash flows of the exposure are compared to the sum of
the net present value of expected future cash flows. If the
contractual cash flows are higher than the expected future
cash flows, the difference is recognised as an expected
credit loss. The expected future cash flows are discounted
with the effective interest rate (EIR). The fair value of
collateral and received guarantees are taken into account
when calculating expected future cash flows.
The key elements of the ECL calculations are as follows:
PD The probability of default is an estimate of the
likelihood of default over a given time horizon. A default
may only happen at a certain time over the assessed
period, if the exposure has not been previously
derecognised and is still in the portfolio. The PD used
in stage transition is defined on a client level. The PD
used to calculate the exposure’s expected credit loss
takes also into account the guarantees received, so
that the Finnish government PD is applied in the ECL
calculation instead.
EAD The exposure at default is an estimate of the exposure
at a future default date, taking into account expected
changes in the exposure after the reporting date,
including prepayments of principal and interest,
whether scheduled by contract or otherwise, expected
drawdowns on committed facilities, and accrued
interest from missed payments.
LGD The loss given default is an estimate of the loss arising
in the case where a default occurs at a given time. It is
based on the difference between the contractual cash
flows due and those that the lender would expect to
receive, including cash flows from the realisation of
any collateral.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
When estimating the ECL, the Group considers three
scenarios. Each of these are associated with different PDs,
EADs and LGDs. When relevant, the Group’s assessment of
multiple scenarios also incorporates how defaulted loans are
expected to be recovered, including the probability that the
loans will cure and the value of collateral or the amount that
might be received for selling the asset. The maximum period
for which the credit losses are determined is the contractual
life of a financial instrument unless the Group has the legal right
to call it earlier.
Impairment losses and their reversals are accounted for and
disclosed separately from modification losses or gains that are
accounted for as an adjustment of the financial asset’s gross
carrying amount.
The accounting principles of ECL are summarised below:
• Stage 1: If there has been no significant increase in credit
risk since initial recognition, the provision for exposures is
based on the 12-month expected loss. The 12-month ECL is
calculated as the portion of the lifetime ECL that represents
the ECL that results from default events on a financial
instrument that are possible within the 12 months after the
reporting date. The Group calculates the 12-month ECL
allowance based on the expectation of a default occurring in
the 12 months following the reporting date. These expected
12-month default probabilities are applied to a forecast
EAD and multiplied by the expected LGD and discounted
by an EIR.
• Stage 2: When the exposure has shown a significant
increase in credit risk since origination but is not
credit-impaired, the Group records a provision for the
lifetime expected credit losses. The mechanics are
similar to those explained above, including the use of
multiple scenarios, but PDs and LGDs are estimated
over the lifetime of the instrument. The expected
cash shortfalls are discounted by their EIR.
• Stage 3: For assets considered credit-impaired, the
Group recognises the lifetime expected credit losses.
For these exposures interest revenue is calculated by
applying the EIR to the amortised cost (net of provision).
• Purchased or originated credit impaired assets (POCI) are
financial assets that are credit impaired on initial recognition.
• Loan commitments: When estimating ECL for
undrawn loan commitments, the Group estimates the
expected portion of the loan commitment that will be
drawn down over its expected life. The ECL is then
calculated based on the present value of the expected
shortfalls in cash flows if the loan is drawn down,
based on probability-weighting of the three scenarios.
The expected cash shortfalls are discounted at an
approximation to the expected EIR of the loan.
9.2 Significant increase in credit risk
At each reporting date, the Group assesses whether there has
been a significant increase in credit risk for exposures since
initial recognition on an individual basis by comparing the risk of
default occurring over the expected life between the reporting
date and the date of initial recognition. If one of the following
factors indicates that credit risk has increased significantly, the
instrument is transferred from stage 1 to stage 2:
• Thresholds for a significant increase in credit risk compared
to the initial stage: a threefold (200%) increase in lifetime
probability of default compared to the initial, and a single
point in time (PiT) probability of default of the financial
instrument for the year in question is greater than 0.3%.
• Additional qualitative factors, such as forbearance on a
financial asset or watch list of counterparties
• Financial assets which repayments are more than 30 days
past due.
Movements between stage 2 and stage 3 are based on
whether a financial asset is credit-impaired due to the
change in credit risk. A financial asset is impaired if there is
objective evidence of the impairment. An exposure will migrate
through the ECL stages as asset quality deteriorates. If, in a
subsequent period, asset quality improves and also reverses
any previously assessed significant increase in credit risk
since origination after a probation period and after fulfilment of
certain criteria, then the calculation basis for ECL reverts from
lifetime ECL to 12-month ECL.
Transition from stage 1 to stages 2 and 3, and from stage 2 to
stage 3 are immediate. Transition from stage 2 to stage 1 and
from stage 3 to stage 2 requires that the criteria for transition
must be met for six months before transition (probation period).
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
In the measurement of expected credit losses, the Group
includes forward-looking information and macroeconomic
scenarios in the model. The scenarios are the same as used
in the Group’s annual financial planning and stress testing.
The macroeconomic projections cover a three-year period
and as no reliable macroeconomic projections exceeding
a three-year time horizon are available, forward-looking
adjustment will be limited to a three-year period. Mainly three
scenarios are used: base, optimistic and adverse. Scenarios
also include probability weights. The ECL model consists
of the following macroeconomic variables for Finnish
counterparties of financial assets: Finnish government long-
term interest rates, the development of residential housing
prices and unemployment rate. The projections are included
in the macroeconomic scenarios. For non-Finnish financial
assets, stress test scenarios published by the European
Central Bank are used.
9.3 Forborne and modified loans
The Group sometimes makes concessions or modifications
to the original terms of loans or other receivables as a
response to the borrower’s financial difficulties, rather than
enforcing the collection of collateral. Forbearance measures
are concessions to original contractual payment terms
agreed at the customers’ initiative to help the customer
through temporary payment difficulties. Performing forborne
exposures include forborne exposures reclassified as
performing during their probation period or forbearance
measures made into a performing loan. Loan modifications
due to reasons other than the customer’s financial
difficulties are not classified as forborne exposures. The
Group considers a loan forborne when such concessions
or modifications are provided as a result of the borrower’s
present or expected financial difficulties and the Group
would not have agreed to them if the borrower had been
financially healthy.
Once a loan or other receivable has been classified as
forborne, it will remain forborne for a minimum 24-month
probation period. In order for the loan or other receivable to
be reclassified out of the forborne category, the customer
has to meet all of the following criteria:
• All of their loan facilities and other receivables have to be
considered performing.
• The probation period of two years has passed from the
date the forborne contract was considered performing.
• The Group has received regular payments of more than an
insignificant amount of principal or interest during at least
half of the probation period.
• The customer does not have a contract that is more than
30 days past due.
Forborne loans and payment delays are regularly reported to
the Group’s management as an indicator of anticipated client
payment ability or solvency.
9.4 Presentation of allowance for ECL in the statement of
financial position
Loss allowances for ECL are recognised in the income
statement with a corresponding charge to the statement of
financial position as follows:
• Financial assets classified at amortised cost: as a
deduction from the gross carrying amount of the assets.
• Debt instruments classified at FVOCI: no loss allowance
is recognised as a deduction from the gross carrying
amount of the assets in the statement of financial position
because the carrying amount of these assets is at fair
value. However, the loss allowance is recognised through
the other comprehensive income in fair value reserve.
The accumulated loss recognised in fair value reserve
is recycled through OCI to the income statement upon
derecognition of the financial assets.
• Finance lease receivables: as a deduction from the gross
carrying amount of the assets.
• Binding loan commitments: recognised in Provisions and
other liabilities.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
9.5 Write-off
Financial assets are written off, either partially or in full, when
the Group has no reasonable expectations of recovering the
financial asset. This is generally the case when the Group
determines that the borrower or guarantor does not have
assets or sources of income that could generate sufficient
cash flows to repay the amounts subject to impairment. The
Group’s credit risk and credit risk management are further
discussed in Note 2 Risk management principles and the
Group’s risk position. If the amount to be written off is greater
than the accumulated loss allowance of the expected credit
loss, the difference is first treated as an addition to the
allowance that is then applied against the gross carrying
amount.
Financial assets that are written off could still be subject to
enforcement activities in order to comply with the Group’s
procedures for recovery of the amounts due. Subsequent
recoveries of amounts previously written off reduce the
amount of the expense in the income statement.
10. Hedge accounting
The interest rate and foreign exchange rate risk of the
Group are managed by entering into derivative transactions.
According to the Market Risk Policy the Group’s hedging
strategy is to mainly hedge all material foreign exchange
and interest risks of financial assets and liabilities with
maturities exceeding one year. As a result, foreign currency
denominated items are translated into euros and fixed rate
and long-term reference rates are swapped to floating
interest rates with shorter terms.
MuniFin Group applies fair value hedge accounting to:
• Financial assets and liabilities and lease agreements
denominated in euros, where the plain-vanilla interest rate
of the hedged item has been swapped to a floating rate
using derivatives.
• Foreign currency denominated financial liabilities with fixed
interest rates, which have been hedged by exchanging the
principal into euros and the interest rate into a floating rate.
The Group has documented the hedge relationships within
hedge accounting and they comply with the Group’s risk
management objectives and strategy. The Group does not
apply cash flow hedge accounting.
The carrying amounts of assets and liabilities in hedge
accounting are presented in Note 16 Financial assets and
liabilities. The fair values of derivatives included in hedge
accounting are presented in Note 24 Derivative contracts.
The notionals of hedged items, the fair value of the hedged
items and the impact of hedge accounting on profit or loss
and on equity are shown in Note 25 Hedge accounting. The
impact of hedge accounting on profit or loss is also shown in
Note 8 Net income from hedge accounting.
The changes in fair value due to foreign exchange differences
of derivatives in hedge accounting and the hedged items are
recognised in the income statement under Net income from
securities and foreign exchange transactions. Other changes
in fair value of the hedged items and derivatives hedging
them are recognised in the income statement under Net
income from hedge accounting. The ineffective portion of the
hedging relationship is also shown on this line in the income
statement. The interest received and paid on derivative
contracts is recognised as an adjustment to Interest and
similar expenses of hedged liabilities or as an adjustment to
Interest and similar income of hedged assets.
The Group applies both hedge accounting according to
IFRS 9 standard and portfolio hedge accounting according to
IAS 39 standard.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
10.1 IFRS 9 hedge accounting
Fair value hedge accounting according to IFRS 9 standard is
applied to:
• Fixed rate funding and zero-coupon funding denominated
in euros. The hedged item for euro denominated funding is
interest rate risk.
• Fixed rate funding and zero-coupon funding denominated
in foreign currencies; and
• Structured lending and finance lease agreements at fixed
and long-term reference rates.
For all foreign currency hedge relationships, the Group
has elected to utilise Cost-of-Hedging. For each hedge
relationship, when the cross-currency swap is designated
as a hedging instrument, the cross-currency basis spread is
separated and excluded from the designation and accounted
for as Cost-of-Hedging. The difference between the changes
in fair value of the actual derivative and the designated
portion of the derivative are recorded through the other
comprehensive income under Net change in Cost-of-Hedging
to the Cost-of-Hedging reserve. Thus, changes in cross
currency basis spreads will impact other comprehensive
income and not create ineffectiveness in the hedge
relationship.
For financial liabilities, the hedged item is at amortised cost,
excluding the portion of hedged interest risk, which is subject
to fair value hedge accounting. The credit risk of the Group
is not included in the hedging relationship. For each financial
liability in fair value hedge accounting, the Group determines
the credit spread of each trade at inception. The credit
spread corresponds to the margin, which needs to be added
to the discount curve in order for the fair value at inception
to match the issue price. The credit spread is held constant
throughout the hedge relationship and based on its present
value, the fair value of the financial liability with respect to the
hedged risk can be calculated. The change in the value of the
hedged risk is recognised as an adjustment to the carrying
amount of the hedged item in the income statement under
item Net income from hedge accounting. Ineffectiveness
between the hedged item and the designated portion of the
hedge are recorded in the income statement. Separating the
credit risk from the fair value is a requirement for applying
hedge accounting only on interest rate and foreign exchange
risks. The Group uses interest rate swaps and cross currency
interest rate swaps as hedging instruments.
In addition, fair value hedge accounting according to IFRS 9
standard is applied to structured lending, which passes the
SPPI test and is thus at amortised cost and which has been
hedged 1:1 with interest rate swaps. The customer marginal of
the lending agreement is not part of the hedge relationship.
Both funding and structured lending are hedged with
hedging instruments with terms that match the hedged item.
The hedge ratio between the hedged item and hedging
instrument is 1:1. As a result, it is expected that the fair value
changes of the derivative offset the fair value changes of
the hedged item related to the hedged risk. Prospective
effectiveness testing has been performed by verifying that
the critical terms match. Ineffectiveness is introduced into
the hedge relationship due to the differences in the interest
rate curves used in valuing the hedged item and hedging
instrument. In addition, ineffectiveness could be created if the
critical terms would differ or if the credit risk of the derivative
would increase. MuniFin has CSA collateral agreements with
its derivative counterparties to mitigate the counterparty
credit risk related to derivatives. The effectiveness of all
hedge relationships is verified at inception of the hedge
relationship and regularly after that on a quarterly basis.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Fair value hedge accounting according to IFRS 9 standard
is also applied to finance lease agreements at fixed and
long-term reference rates. The interest risk of these lease
agreements is hedged with interest rate derivatives. Due
to the size of the agreements, several lease agreements
are hedged with one interest rate derivative contract. The
terms of the derivative contract match the combined terms
of the hedged agreements. The customer marginal of the
finance lease agreement is not part of the hedge relationship.
The principles of fair value hedge accounting applied to
lease agreements resemble those presented above to a
large extent. Due to the way the agreements are hedged,
the prospective effectiveness testing is performed using
sensitivity analysis. In the analysis the fair value change of the
hedged item and hedging instrument is simulated by shifting
the interest rate curves.
The hedged items, finance lease agreements and structured
lending are measured at amortised cost excluding the
portion of hedged interest risk, which is subject to fair value
hedge accounting. The change in the value of the hedged
risk is recognised as an adjustment to the carrying amount of
the hedged item and in the income statement under item Net
income from hedge accounting.
10.2 IAS 39 portfolio hedge accounting
For financial assets, the Group applies fair value hedge
accounting in accordance with IAS 39 portfolio hedge
accounting to lending at fixed rates and long-term reference
rates. The hedged risk is interest rate risk. The customer
marginal of the lending agreement is not part of the hedge
relationship. The negative reference rates are taken into
account as part of the eliminated margin. Lending is hedged
as a portfolio, and as such the hedged item consists of
several lending agreements. The lending agreements
are grouped and hedged by pricing and re-fixing dates.
The interest rates and payment dates of the interest rate
derivatives hedging the lending agreements contained in
the portfolio are defined so that the notionals and cash flows
match the terms of the lending agreements of the hedged
item. Therefore, the fair value changes of the hedging
instrument are assumed to offset those of the lending
agreements. The hedge relationship is expected to be
effective throughout the hedged period, until maturity. As the
portfolio consists of several hedges and lending agreements,
prospective effectiveness testing is performed for each
new group of hedged items and for the entire portfolio at
inception of each new hedge. Prospective effectiveness
testing is performed as a sensitivity analysis and by reviewing
the notionals of the hedges and hedged items by maturity
bucket. The Group performs retrospective effectiveness
testing using regression analysis on fair value changes.
The hedged items of the portfolio are measured at amortised
cost excluding the portion of hedged interest risk, which is
subject to fair value hedge accounting. The change in the
value of the hedged risk is recognised as an adjustment to
the carrying amount of the hedged item and in the income
statement under item Net income from hedge accounting.
11. Offsetting financial instruments
Financial assets and liabilities are offset, and the net amount
is reported in the statement of financial position, when
there is a legally enforceable right to offset the recognised
amounts and there is an intention to settle on a net basis
or realise the asset and settle the liability simultaneously.
Offsetting financial instruments are presented in Note 19
Offsetting financial assets and liabilities.
12. Cash and cash equivalents
MuniFin Group’s cash and cash equivalents contain cash and
loans and advances to credit institutions payable on demand.
Deposits and investments with maturities less than three
months on the date of the acquisition can also be included in
cash and cash equivalents.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
13. Determination of fair value
Fair value is the price that would be received to sell the
asset or paid to transfer the liability in an orderly transaction
between market participants at the measurement date. The
fair values of financial instruments are determined on the
basis of either price quotations obtained from functioning
markets or, if such markets do not exist, by applying valuation
methods. A market is deemed to be functioning if price
quotations are readily and consistently available, and they
reflect real market transactions executed in a consistent
manner between independent parties.
If a quoted price in an active market is not available for a
financial instrument, the Group uses standard valuation
techniques across the industry and for which sufficient
information is available to determine the fair value. The
chosen valuation technique should include all factors
that market participants would consider in pricing the
financial instrument. The valuation technique uses as
much observable input data as possible and as little non-
observable input data as possible.
The Group measures fair values using the following fair value
hierarchy, which reflects the significance of the inputs used in
making the measurements:
• Level 1: Inputs that are quoted market prices (unadjusted)
for identical instruments in active markets that the Group
can access at the measurement date. The market is
considered to be active if trading is frequent and price
data is regularly available. These quotes (mid) represent
the price for an orderly transaction between parties in the
market on the valuation date.
• Level 2: Inputs other than quoted prices included within
level 1 that are observable either directly (i.e. as prices)
or indirectly (i.e. derived from prices). This level includes
instruments valued using quoted prices for identical
instruments in markets that are considered less than active
or other valuation techniques in which all significant inputs
are directly or indirectly observable from market data.
• Level 3: This level includes all instruments for which the
valuation technique includes inputs that are unobservable,
and the unobservable inputs have a significant impact
on the instrument’s valuation. If the valuation input is
illiquid, extrapolated or based on historical prices, the
valuation input will be defined as a level 3 valuation input
as these types of inputs are per definition unobservable.
Unobservable inputs are used only to the extent that no
relevant observable inputs are available.
If the inputs used to measure fair value are categorised
into different levels of the fair value hierarchy, the fair value
measurement is categorised in its entirety in the level
of the lowest level input that is significant to the entire
measurement.
The best evidence of the fair value of a financial instrument on
initial recognition is normally the transaction price. If the fair
value on initial recognition differs from the transaction price
and the fair value is neither evidenced by a quoted price in
an active market for an identical asset or liability, nor based
on a valuation technique for which any unobservable inputs
are judged to be insignificant in relation to the measurement,
then the financial instrument is initially measured at fair
value and adjusted to defer the difference between the fair
value on initial recognition and the transaction price (Day 1
gain or loss). The difference is amortised on a straight-line
basis throughout the lifetime of the contract. For callable
instruments, the amortisation period is considered to be until
the first call date.
The fair value hierarchy levels, the Group’s valuation methods
and the valuation framework is described in more detail in
Note 17 Fair values of financial assets and liabilities.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
14. Leases
A lease is defined as a contract, or part of a contract, that
conveys the right to control the use of an identified asset for a
period of time in exchange for consideration.
14.1 MuniFin Group as a lessee
Lease liabilities are initially measured at the present value
of the remaining lease payments, discounted using the
incremental borrowing rate. The lease liability is subsequently
measured at amortised cost using the effective interest
method. Right-of-use assets are initially measured at cost
which is the amount equal to lease liability. Lease liabilities
are presented in the statement of financial position under
Provisions and other liabilities and the interest expense under
Interest and similar expense. Lease payments are allocated
between interest expense and the deduction of the lease
liability. Right-of-use assets are presented under Tangible
assets. The right-of-use assets are depreciated on a straight-
line basis over the asset’s useful life or the lease term,
depending on which one is shorter.
The right-of-use assets the Group has leased consist of
various items such as office space, cars, storage units and
parking facilities. The lease terms are negotiated on an
individual basis and they can contain extension options.
The use of extension options is considered on a contractual
basis. When the Group is reasonably certain to exercise
extension and termination options, they are included in the
determination of the lease term.
The Group has elected to use the practical expedient as
allowed by IFRS 16.C10(a) by applying a single discount
rate to all lease liabilities. The majority of the Group’s lease
liabilities relate to office premises for which the interest rate
implicit in the lease is not readily determined. Consequently,
an incremental borrowing rate (IBR) is used. Maturity has
been defined based on the lease terms of office premises
and parking space. The same maturity for the discount rate is
used for all leases since the impact of leases other than office
premises are considered not material.
At each reporting date, MuniFin Group assess whether there
is any indication that right-of-use assets may be impaired
based on either internal or external sources of information.
Typically, a company’s decision to sub-let or vacate leased
property indicates that the right-of-use asset may be
impaired. If impairment indicators exist, MuniFin Group
performs an impairment test and determines the level at
which it carries out impairment testing – i.e., at the asset or
cash-generating unit level.
14.2 MuniFin Group as a lessor
Lease agreements, where the Group is the lessor, have been
classified as finance leases. A lease is a finance lease if the
financial benefits and risks of the asset are substantially
transferred to the lessee. The finance lease agreements are
recognised on the statement of financial position as a finance
lease receivable at an amount corresponding to the Group’s
net investment in the lease. The proceeds from the leases
are divided into repayments and interest income. Interest
income is recognised over the term of the lease in a way that
the remaining net investment yields the same rate of return
over the period of the lease. Finance leases are presented in
the statement of financial position under Loans and advances
to the public and public sector entities. Interest received is
presented in the income statement under Interest income and
similar income.
The Group’s finance leases are long-term leases of movable
fixed assets such as machines, medical equipment, furniture,
vehicles and IT and office equipment. In addition, the Group
offers property leasing. Leasing customers are the same as
in lending, i.e., municipalities, cities, joint municipal authorities,
companies owned and controlled by municipalities, wellbeing
services counties and joint county authorities for wellbeing
services, other units of wellbeing services counties that
are wholly owned or under control of wellbeing services
county administration and wellbeing services enterprises.
The Group does not bear the residual value risk of the lease
agreements.
15. Intangible assets
An intangible asset is recognised in the statement of financial
position only if it fulfils the criteria for intangible assets which
includes for example that the Group has control over the
asset, and it is probable that the expected future economic
benefits that are attributable to the asset will flow to the
Group and the acquisition cost can be measured reliably. The
initial measurement is at cost. The acquisition cost includes
all costs that are directly attributable to preparing the asset
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
for its intended use, including internal personnel costs. The
recognised acquisition cost does not include costs of using
the asset, staff training expenses or administration and other
overhead costs.
After initial recognition, an intangible asset is recognised
at its cost less accumulated depreciation and impairment.
Intangible assets are depreciated at a straight-line basis
over 3–8 years depending on the useful life of the asset.
Depreciation begins when the asset is available for use.
At each reporting date, all intangible assets are reviewed
for indications of impairment and change in their useful
lives. An intangible asset that is not yet available for use is
tested for impairment at least annually. Impairment testing is
performed more frequently if required due to any indication
of impairment. The impairment charge is the difference
between the carrying amount and the recoverable amount of
the intangible asset. The recoverable amount is determined
for the cash generating unit to which the asset belongs to.
A cash-generating unit is the smallest identifiable group of
assets whose cash flows are largely independent of the cash
inflows from other asset groups. As MuniFin’s operations are
treated as a single segment and the operations cannot be
divided into smaller, fully independent cash-generating units,
the impairment is determined by considering MuniFin as a
single cash-generating unit.
16. Cloud computing arrangements
In cloud computing arrangements, such as software as a
service (SaaS) arrangement, the cloud vendor has control
over the asset and thus cloud computing arrangements
cannot be recognised as an intangible asset in the Group’s
statement of financial position. However, the implementation
costs of the cloud computing arrangement may be recorded
in the statement of financial position as a prepaid asset
under Accrued income and prepayments and amortised as an
expense over the period of the access to the software, but
only if the implementation costs consist of costs paid to the
cloud vendor which are not distinct from the access to the
software. The implementation costs are not distinct when
the implementation service could only be performed by the
cloud vendor, for example when the cloud vendor agrees to
customise the software by modifying the existing software
code or writing new code. All other expenses such as internal
personnel costs, external project management costs etc. are
to be recognised as expenses when incurred.
17. Tangible assets
Tangible assets are recognised in the statement of financial
position at historical cost, net of accumulated depreciation
and impairment. Assets are depreciated on a straight-line
basis over their estimated useful lives. The estimated useful
lives are:
Office renovation costs the lease term
Buildings 25 years
Machinery and equipment 5 years
IT equipment 4 years
The assets’ residual values and useful lives are reviewed at
each financial statement date and, if necessary, adjusted to
reflect the changes in the expected economic benefit.
The Group assesses at each reporting date whether there
is any evidence of the tangible assets being impaired. If
evidence of impairment is identified, the recoverable amount
is assessed for the given assets. If the carrying amount of
an asset item is greater than the recoverable amount, an
impairment loss is recognised in the income statement.
18. Provisions and contingent liabilities
A provision is recognised based on an obligation resulting
from a past event when it is probable that the obligation
will be realised, yet the timing and the exact amount are
uncertain. The obligation needs to be based on either an
actual or a legal obligation towards a third party. Provisions
may arise, for example, from onerous contracts or as a result
of reorganisations that have a material effect on the nature
and focus of the Group’s operations. Restructuring provision
is recognised when the Group has prepared a detailed
restructuring plan and has begun to implement the plan or
communicated the matter. Provisions are disclosed in Note
37 Provisions and other liabilities.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
A contingent liability is a potential obligation based on past
events. The existence of the obligation will not be confirmed
until an uncertain future event outside the control of the
Group occurs. Contingent liabilities can also be such
obligations that do not require an outflow to settle or of which
the amount cannot be reliably estimated. Contingent liabilities
are disclosed in Note 40 Contingent assets and liabilities.
19. Equity
Equity consists of share capital, retained earnings and
reserves of equity (reserve fund, fair value reserve, own credit
revaluation reserve, Cost-of-Hedging reserve and reserve
for invested non-restricted equity). Other instruments issued
by the Group can be classified into equity based on their
nature. Perpetual instruments with interest payments which
are at the discretion of the issuer are classified as equity in
the Consolidated Financial Statements. Equity is presented
in Note 39 Equity.
During the financial year 2022, MuniFin redeemed its EUR
350 million Perpetual Fixed rate Resettable Additional Tier 1
Securities originally issued on 1 October 2015. The redemp-
tion date was the first repayment date of the Securities in
accordance with the terms and conditions thereof. The
Securities were redeemed at 100% of the aggregate nominal
amount together with accrued and unpaid interest until the
redemption date. AT1 capital instrument is described in more
detail in the summary of significant accounting policies in
the Consolidated Financial Statements 2021 and in Note 39
Equity to these Consolidated Financial Statements.
20. Recognition of income and expenses
20.1 Net interest income
Interest income and expense from financial assets and
liabilities are recognised in net interest income. Transaction
expenses and premium or discount as well as commissions
and fees received and paid which are considered as a
compensation for the risk incurred by the Group in relation to
the financial instrument and are considered an integral part
of the effective interest rate are taken into account when the
effective interest rate is calculated. For floating rate financial
liabilities premium or discount is amortised from the date of
issuance to the next interest payment date. For fixed rate
financial liabilities, the premium or discount is amortised until
maturity. The Group amortises the premium or discount of
floating rate debt security investments until maturity. In the
current market conditions, the premium or discount on a
financial asset is not based on changes in market rates, but
on credit risk. The market value of a floating rate investment
does not reset to the nominal when its interest rate is re-fixed
to market interest rates, therefore the amortisation to the next
interest date is not justifiable. The Group evaluates the impact
of changes in market conditions on the amortisation principle
and its application regularly.
The negative interest income from assets is presented
as interest expense and the negative interest expense
from liabilities is presented as interest income. The Group
recognises interest income and expenses on derivatives
hedging liabilities in hedge accounting in interest expense
and the interest income and expenses on derivatives hedging
assets in hedge accounting in interest income.
20.2 Commission income and expense
Fees that are not an integral part of the effective interest rate
of a financial instrument are accounted for in accordance
with IFRS 15 standard. Commission income is recognised
when the Group transfers control of services’ performance
obligations to a customer. The key criterion is the transfer of
control. Commission income is recognised to the extent that
the Group is expected to be entitled to the services rendered
to the customer.
The Group’s commission income consists of fees for
financial advisory services and fees for digital services. The
performance obligations of the services are met either over
time or at a point in time, depending on the nature of the
service. The commissions for advisory services are mainly
charged from the customer after the service has been
performed in accordance with the terms of the agreement
and commissions for digital services are charged once a year
and recognised over time. Other commissions are charged
and recognised at the time of the service being provided.
Commission expenses include paid guarantee fees, custody
fees as well as funding programme update fees. Commission
expenses are recognised on accrual basis.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
20.3 Net income from securities and foreign exchange
transactions
Item Net income from securities includes fair value changes of
financial assets and liabilities measured at fair value through
profit or loss, fair value changes of derivative contracts
at fair value through profit or loss (not included in hedge
accounting) as well as capital gains and losses related
to these items. Item Net income from foreign exchange
transactions includes unrealised and realised translation
differences for all items denominated in foreign currencies.
Translation differences related to the hedged items and
hedging instruments in hedge accounting are also included
in this item.
20.4 Net income on financial assets at fair value through
other comprehensive income
Item Net income on financial assets at fair value through other
comprehensive income includes realised gains and losses of
the financial assets at fair value through other comprehensive
income.
20.5 Net income from hedge accounting
Item Net income from hedge accounting includes the net
result from recognising financial assets and liabilities and
derivative contracts hedging them at fair value for the hedged
risk. Foreign exchange gains and losses on hedged items
and hedging instruments are recognised in Net income from
securities and foreign exchange transactions.
20.6 Other operating income
Item Other operating income includes gains from the disposal
of tangible and intangible assets and other operating income.
20.7 Administrative expenses
Item Administrative expenses includes salaries and fees,
pension costs as well as other social security costs.
In addition, costs related to IT, marketing and other
administrative costs are presented as administrative
expenses.
20.8 Depreciation and impairment on tangible and
intangible assets
Item Depreciation and impairment on tangible and intangible
assets includes depreciation and possible impairment of
tangible and intangible assets as well as right-of-use assets.
The depreciation principles are discussed in Sections
15. Intangible assets, 17. Tangible assets and 14. Leases of
this Note.
20.9 Other operating expenses
Item Other operating expenses includes expenses to
authorities, rental expenses and other expenses from credit
institution operations paid by the Group.
Expenses to authorities include stability fees as well as other
administrative contributions and supervisory fees to the
Finnish Financial Supervisory Authority (FIN-FSA) and the
European Central Bank (ECB). Stability fees are contributions
paid to the EU Single Resolution Fund. The Resolution Fund
is managed by the EU Single Resolution Board (SRB), which
decides on the amount of the stability fees. The stability fee
is determined by the size of the entity and the risks involved
in its business. The fee is fully expensed at the beginning of
the financial year using the estimate of the amount of the
payment and adjusted after the payment has been made.
In addition to the stability fee, the Group pays to the SRB an
annual administrative contribution. Also, the Group pays the
Financial Stability Agency (FSA) an administrative fee that is
determined on the same basis as the FIN-FSA’s supervisory
fee. Administrative contributions and fees are recognised on
an accrual basis as Other operating expenses.
The FIN-FSA’s supervisory fee is based on the fixed basic fee
and the amount of total assets. The supervisory fee payable
to the ECB is determined on the basis of the significance
of the supervised entity and the risk profile. Supervisory
fees are recognised on an accrual basis as Other operating
expenses.
20.10 Credit loss and impairments on financial assets
Item Credit loss and impairments on financial assets includes
the expected credit losses recognised for the financial
assets classified at amortised cost and at fair value through
other comprehensive income as well as write-offs and
subsequent recoveries recognised for all financial assets.
The accounting principles of the impairments are discussed
in Section 9. Impairment of financial assets of this Note.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
21. Remuneration
21.1 Short-term employee benefits
Short-term employee benefits consist of salaries, fringe
benefits, annual leave and performance bonuses. The Group
recognises the cost of these benefits for the period in which
the employees render the related service.
Short-term employee benefits are employee benefits (other
than termination benefits) that are expected to be settled in
their entirety within twelve months of the financial reporting
period in which the employees render the related service.
The income statement line-item Salaries and remuneration
consist of short-term employee benefits and termination
benefits.
21.2 Termination benefits
Termination benefits are employee benefits provided in
exchange for the termination of an employee’s employment
as a result of the Group’s decision to terminate an
employee’s employment before the normal retirement date
or an employee’s decision to accept an offer of benefits in
exchange for the termination of employment. Termination
benefits are based on termination of employment, not on
work performance.
21.3 Post-employment benefits
Post-employment benefits are paid to recipients after the
termination of employment. In MuniFin Group, these benefits
consist of pensions. The Group’s pension plans are defined
contribution plans. Pension coverage has been arranged
via an external pension insurance company. For defined
contribution plans, the Group makes fixed payments to
external pension insurance companies. After this, the Group
has no legal or actual obligation to make further payments
if the pension insurance company does not have sufficient
assets to pay the employees’ pensions for current or
preceding periods. The contributions payable are recognised
as expenses in the income statement for the period to which
the payments relate.
The Group’s remuneration system is in its entirety
contribution based. The description of the remuneration
system is available at MuniFin’s website www.munifin.fi.
22. Income taxes
Item Income taxes in the consolidated income statement
comprises taxes that are determined based on the taxable
income for the period generated by the Group companies,
and changes in deferred taxes. Taxes are recognised in the
income statement, with the exception of taxes related to
items recognised in other comprehensive income or in equity.
In this case, the tax is also recognised correspondingly in
other comprehensive income or directly in equity. Taxes
based on the taxable income for the period are calculated
based on tax rate and legislation enacted or approved in
practice by the financial statement date. This tax is adjusted
for any taxes related to previous financial years.
Deferred taxes are recognised for temporary differences
between the assets and liabilities’ carrying amounts and
taxable value as well as for unused tax losses and unused
tax credits. Deferred taxes in the Consolidated Financial
Statements consist of the release and transfer to equity
of the voluntary credit loss provision and depreciation
difference recorded by the Parent Company. In addition,
deferred taxes arise from financial assets measured at fair
value through other comprehensive income, changes in
own credit risk on financial liabilities designated at fair value
through profit or loss and Cost-of-Hedging recorded through
other comprehensive income. In addition, deferred taxes
arise from differences in the treatment of the AT1 capital loan
and issuance expenses and interest expenses related to the
AT1 capital loan in the Parent Company’s statutory Financial
Statements and the Consolidated Financial Statements.
Deferred taxes are presented in Note 32 Deferred tax.
Deferred tax liabilities and receivables are calculated based
on the tax rate that is anticipated to be in force at the time of
the temporary difference being released.
23. IBOR reform
The IBOR reform is a global change aimed at replacing
Interbank Offered Rates (IBORs) with alternative nearly
risk-free rates (RFR). In the European Union, the reform
is regulated by the EU Benchmark Regulation (EU BMR).
Most prominently, the IBOR reform affects the London
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Interbank Offered Rate (LIBOR), a panel-based benchmark
rate that is available in five currencies (USD, GBP, EUR, CHF,
JPY). GBP, EUR, CHF, JPY and USD (1-week and 2-month)
LIBOR quotation expired at the end of 2021, and for other,
longer maturities (1-, 3-, 6- and 12-month) of the USD LIBOR
reference rate, the quotation will expire at the end of June
2023.
Euribor is the most important IBOR used by MuniFin
Group. The calculation methodology of Euribor changed
during 2019. In July 2019, the Belgian Financial Services
and Markets Authority (FSMA) granted authorisation with
respect to Euribor under the EU BMR. This allows market
participants to continue to use Euribor for both existing
and new contracts. The Group’s current view is that
Euribor will continue to exist as a benchmark rate for the
foreseeable future.
MuniFin Group has adopted the Interest Rate Benchmark
Reform – Amendments to IFRS 9, IAS 39, IFRS 7 and IFRS
16 for phases 1 and 2, published by the IASB (International
Accounting Standards Board). The phase 1 amendments
modify specific hedge accounting requirements related to
the uncertainty arising from the IBOR reform to the timing
and amount of cash flows of a hedged item or a hedging
instrument during the period of uncertainty to allow hedge
accounting to continue for affected hedge relationships.
The Group has initially adopted IBOR reform related
phase 1 amendments to IFRS 9, IAS 39 and IFRS 7 from 1
January 2020. The Group will cease to apply the phase 1
amendments when the uncertainty arising from the IBOR
reform is no longer present with respect to the timing and the
amount of the interest rate benchmark-based cash flows of
the hedged item or hedging instrument, or when the hedge
accounting is discontinued.
The phase 2 amendments address issues that might affect
financial reporting when an existing interest rate benchmark
is actually replaced. The phase 2 amendments allow hedge
accounting not to be discontinued simply because the
hedged item, hedging instrument or hedged risk is changed
as a direct consequence of the IBOR reform. The phase 2
amendments introduce simplifications for the accounting
treatment of changes to financial instruments. MuniFin Group
has applied the phase 2 amendments as of 31 December
2020. The phase 2 amendments will cease to apply once
the changes required by the IBOR reform have been
implemented.
The implications of the IBOR reform to the Group’s hedge
accounting are discussed in more detail in the summary of
significant accounting policies in the Consolidated Financial
Statements 2021.
In the beginning of 2022, MuniFin Group had some liabilities
designated at fair value through profit or loss, which had
IBOR rate ceased at the end of 2021. These liabilities have
been restructured in the first half of 2022. The restructurings
did not result in derecognition.
At the end of 2022, MuniFin Group has some liabilities
linked to the USD LIBOR reference rate. These liabilities are
intended to be restructured or repurchased before the USD
LIBOR reference rate will cease at the end of June 2023.
In addition, the Group has derivative contracts referencing
to ceasing USD LIBOR reference rates and with maturity
beyond June 2023. These derivative contracts include both
derivative contracts in hedge accounting and other hedging
derivative contracts. The changes required by the IBOR
reform may be conducted, inter alia, through restructuring,
activation of fallback conditions or termination of the
contract, depending on the manner in which the changes
required by the IBOR reform are implemented in the financial
instrument hedged by that derivative in question.
The following tables show a summary of financial instruments
linked to the USD LIBOR reference rate and which mature
beyond June 2023.
31 Dec 2022 (EUR 1,000) Nominal value
Derivative contracts in hedge accounting 6,562,910
Derivative contracts at fair value through
profit or loss 549,809
Total derivative contracts 7,112,719
31 Dec 2022 (EUR 1,000) Carrying amount
Financial liabilities (other than
derivatives) 41,002
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
24. New and amended standards and interpretations
not yet adopted
* = Not yet endorsed for use by the European Union as of 31
December 2022.
The Group has not yet adopted the following new and
amended standards and interpretations already issued by
the IASB. The Group will adopt them on their effective date or,
if the date is other than the first day of the financial year from
the beginning of the subsequent financial year. Standards
published by IASB that enter into effect after 1 January 2022:
Classification of Liabilities as Current or Non-current -
Amendments to IAS 1 Presentation of Financial Statements
* (effective for financial years beginning on or after 1 January
2023, early application is permitted). The amendments
are to promote consistency in application and clarify the
requirements on determining if a liability is current or non-
current. Management estimates that the change will not have
a material impact on the Consolidated Financial Statements
of MuniFin Group.
Disclosure of Accounting Policies – Amendments to IAS
1 Presentation of Financial Statements and IFRS Practice
Statement 2 Making Materiality Judgements (effective
for financial years beginning on or after 1 January 2023,
early application is permitted). The amendments clarify the
application of materiality to disclosure of accounting policies.
Management estimates that the change will not have a
material impact on the Consolidated Financial Statements of
MuniFin Group.
Definition of Accounting Estimates – Amendments to IAS
8 Accounting Policies, Changes in Accounting Estimates
and Errors (effective for financial years beginning on or
after 1 January 2023, early application is permitted). The
amendments clarify how companies should distinguish
changes in accounting policies from changes in accounting
estimates, with a primary focus on the definition of and
clarifications on accounting estimates. Management
estimates that the change will not have a material impact on
the Consolidated Financial Statements of MuniFin Group.
Deferred Tax related to Assets and Liabilities arising from a
Single Transaction – Amendments to IAS 12 Income Taxes
(effective for financial years beginning on or after 1 January
2023, early application is permitted). The amendments
narrow the initial recognition exemption (IRE) and clarify
that the exemption does not apply to transactions such as
leases and decommissioning obligations which give rise to
equal and offsetting temporary differences. Management
estimates that the change will not have a material impact on
the Consolidated Financial Statements of MuniFin Group.
Lease Liability in a Sale and Leaseback – Amendments to
IFRS 16 Leases* (effective for financial years beginning on
or after 1 January 2024, early application is permitted).
The amendments introduce a new accounting model for
variable payments and will require seller-lessees to reassess
and potentially restate sale-and-leaseback transactions
entered into since 2019. Management estimates that the
change will not have a material impact on the Consolidated
Financial Statements of MuniFin Group.
Other standards and interpretations to be applied in future
financial periods are assessed not to have a material impact
on the Consolidated Financial Statements.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
1. General risk management principles
MuniFin Group’s operations require sufficient risk
management mechanisms to ensure that the Group’s
risk positions remain within the limits set by the Parent
Company’s Board of Directors. MuniFin Group applies very
conservative principles to its risk management. The aim is
to keep the overall risk profile at such a low level that the
Parent Company’s strong credit rating (Aa1 /AA+) is not
compromised.
The Group regularly surveys risks related to its operations
and continuously develops methods for recognising,
measuring and managing risks. Risks are assessed with
regular risk analyses. The aim of the analyses is to recognise
the new challenges and risks created by changes in the
operating environment and prioritise the risks and their
management on the basis of the results. The Group mitigates
risks it has identified with collateral, guarantees, derivative
contracts, insurance and active risk management. According
to its own analysis, the Group does not have any liabilities
containing wrong-way risk (the likelihood of a default by
counterparty is positively correlated with general market risk
factors).
Note 2. Risk management principles and the Group’s risk position
The Board of Directors has ratified the Group’s Risk and Governance Framework and, as part of it, key policies and
processes for the effective implementation of internal control and risk management, as shown in the following table.
BUSINESS MODEL
SUSTAINABILITY
POLICY
STRATEGY
RISK POLICIES
RISK ASSESSMENT DOCUMENTS
CUSTOMER CONDUCT POLICIES
INTERNAL GOVERNANCE DOCUMENTS
BOARD OF DIRECTORS
Market Risk Policy
ICAAP
AML & CTF Policy
Remuneration Framework
Outsourcing Policy
Internal Audit Charter
Disclosure Policy
Fit & Proper Policy
Accounting Policies
Investment Services Policy
Credit Risk Policy
ILAAP
Liquidity & Funding
Risk Policy
Contingency
Funding Plan
Risk Appetite Framework (RAF)
Risk appetite setting and articulation of the operational limits for the material risk
Compliance &
Operational Risk
Policy
Recovery Plan
Valuation Policy
Stress Testing
Programme
Risk Management Policy
EMT &
MANAGERS
Guidelines
Instructions
Contingency and Disaster Recovery Plans
Processes
CORPORATE
GOVERNANCE POLICY &
AUTHORISATIONS
RISK & GOVERNANCE FRAMEWORK
Model Risk
Management Policy
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
MuniFin Group’s Risk Appetite Framework (RAF) defines
target and maximum levels for risk indicators. The framework
is updated regularly, at least annually, and the Board of
Directors of the Parent Company approves the document.
The RAF enables the Group to:
• Effectively identify, assess and manage the risks inherent
in its strategy as well as other internal and external
business risks.
• Understand and decide on the amount of risk it is willing
to take in executing its business strategy, and to actively
communicate it.
• Promote sound discussions of MuniFin Group’s risk
appetite and enable the challenging of business and risk-
taking decisions.
The RAF is linked to both short-term and long-term strategic
plans, capital and financial plans, the recovery plan and the
remuneration policy. It is fully aligned with the ICAAP (Internal
Capital Adequacy Assessment Process) and the ILAAP
(Internal Liquidity Adequacy Assessment Process).
The RAF is described in the following table. The Group
has remained within the risk appetite set by the Board of
Directors during the financial year.
Summary of the Risk Appetite Framework indicators
Risk pillars Risk indicators Objectives
Profitability & Capital
Credit rating
Maintain a sufficient level of earnings,
profitability and capital, even in stress
periods.
Leverage ratio
Net interest income ratio
Change in CET1 ratio
Liquidity & Funding
Liquidity Coverage Ratio
Maintain an adequate liquidity buffer and
a sustainable funding position and profile,
even in stress periods.
Net Stable Funding Ratio
Financing gap
Indicators related to funding
Survival Horizon
Credit risk
Non-performing exposures
Maintain a sound credit risk profile
appropriate for MuniFin’s business model.
Expected credit losses
Average credit rating (customer financing)
Single-name concentration (customer financing)
Energy efficiency of real estate new-production
Climate-related & environmental risk score (municipality financing)
Average credit rating (liquidity portfolio)
Geographic concentration (liquidity portfolio)
ESG score (liquidity portfolio)
Stressed CCR derivative loss
Market risk
Total EVE risk
Maintain a sound market risk profile
appropriate for MuniFin’s business model.
Total NII risk
NII Basis risk
FX risk
Credit spread risk
Fair value VaR
Prudent valuation
Operational risk
Ouflow index of staff
Maintain an effective operational control
and compliance to support functional and
responsible operations.
Frequency of material IT disruption
IT downtime
Number of material IT system and data breaches and availability of
data and systems
Number of internal fraud incidents
Number of complaints and claims
Regulatory breaches
Significant operational losses
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
There were no material changes in the Group’s risk appetite
in 2022. The Group’s risk position has remained stable and at
a moderate level in terms of risk level. Based on the Group’s
assessment, risk management met the requirements set
for it. MuniFin Group’s risk management and internal control
practices and processes are developed continuously. During
2022, the ESG (Environmental, Social, Governance) risk
capabilities have been developed in particular, and the Group
has been preparing for the new disclosure requirements that
came into force at the end of 2022. In addition, the Group
developed the validation framework for calculation models.
The Group’s risk position is reported at least monthly to the
Board of Directors, and, in addition, the Chief Risk Officer
provides the Risk Committee of the Board a quarterly
extended risk review of the Group’s risk positions.
Russia’s invasion of Ukraine has had little effect on the
Group’s financial position and results. Despite the market
turbulence, the Group’s funding continued in the usual
manner 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. Russia’s invasion of Ukraine mainly affects
the Group’s risks indirectly through market conditions.
Cyberattacks targeted at the Group could also affect its risks,
but the Group has carefully prepared for these.
The IBOR reform is a global change aimed at replacing
Interbank Offered Rates (IBORs) with alternative nearly
risk-free rates (RFR). Most prominently, the IBOR reform
affects the London Interbank Offered Rate (LIBOR), a panel-
based benchmark rate that is available in five currencies
(USD, GBP, EUR, CHF, JPY). GBP, EUR, CHF, JPY and USD
(1-week and 2-month) LIBOR quotation expired after 2021.
For longer maturities (1-, 3-, 6- and 12-month) of the USD
LIBOR reference rate, the quotation expiring date has
been postponed to June 2023. The IBOR reform has not
had significant impacts on the Group’s risk management
principles. The impact of the USD LIBOR reform on MuniFin
Group’s financial liabilities and derivatives is discussed in
more detail in the accounting policies (Note 1) in Section 23.
IBOR reform.
2. Organisation of risk management and capital
adequacy management
For the implementation of the internal control framework,
the Group applies the three lines of defence model. MuniFin
Group has an extensive risk management organisation, which
covers all operations including the tasks and responsibilities
of different units and decision-making bodies. The internal
control framework is supported by controls of different
processes. Internal control is performed at all levels of the
organisation and the nature and scope of operations are
taken into account in defining the operating methods used in
internal control. Internal control is primarily carried out in line
operations, where internal control is continuous and part of
day-to-day operations.
1
Business units
Support functions
Risk management
Compliance
Internal Audit
2 3
Board of Directors
Audit, Risk and Remuneration Committees
MuniFin Group's Defence Lines
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The Board of Directors of the Parent Company is responsible
for the Group’s management and the proper arrangement of
its operations. The Board of Directors is responsible for the
duties specified for it in the Limited Liability Companies Act,
the Articles of Association and other legislative provisions
and regulations issued by the authorities. Duties and
principles of the Board of Directors are confirmed as part of
MuniFin’s Corporate Governance Policy and the appended
Board’s Rules of Procedure. The Corporate Governance
Statement is available on MuniFin’s website. The main
duties of the Board include confirming the Group’s strategy,
annual operating plan and budget, monitoring the Group’s
financial situation and ensuring through supervision that the
management, and risk management in particular, are properly
arranged by management. The Board of Directors also
makes all the far-reaching decisions related to the nature and
scope of the activities.
As requested by the regulation and in order to organise its
work as efficiently as possible, the Board has established
an Audit Committee, a Risk Committee, and a Remuneration
Committee for assistance and for the preparation of
matters. The Board may also establish other committees as
necessary.
The purpose of the Audit Committee, as a preparatory
body, is to assist the Board of Directors in duties related to
financial reporting and internal control. The Audit Committee
supervises work of the external and internal audit.
The Risk Committee assists the Board in the matters in
regard to the Group’s overall risk appetite and strategy,
and in overseeing that the management complies with the
risk strategy decided by the Board. The Risk Committee is
to estimate whether the prices for the services that tie up
capital correspond with the Group’s business model and
risk strategy and, if this is not a case, prepare a plan for the
Board’s approval to remedy the matter. Furthermore, the Risk
Committee shall assist the Remuneration Committee in the
establishment of sound remuneration policies, and to assess
whether the incentives provided by the remuneration system
take into consideration the Group’s risks, capital and liquidity
requirements, and the likelihood and timing of the earnings.
The Remuneration Committee of the Board of Directors is
responsible for preparatory work to assist in the Board’s
decision-making concerning the setting of objectives related
to the Group’s remuneration system, assessment of whether
the objectives are attained, development of the remuneration
system and the remuneration and other benefits for the CEO
and persons reporting to the CEO.
In the first line of defence, business units and support
functions have the ownership of material risk types and are
responsible for identifying, measuring, managing, monitoring
and reporting risks. The Group’s risk appetite, guidelines,
processes, controls and limits guide this work. All employees
who work in the first line of defence are responsible for the
risk management of their own work.
The second line of defence includes Risk Management
and Compliance functions. The Risk Management function
supplements the business units’ work with their independent
supervisory and reporting responsibilities. Independent Risk
Management is responsible for continuous development
of risk management methods, risk-related policies and
processes, advice and information, the alignment of risk
strategy, risk limits and risk appetite as part of RAF, as well
as informing the Executive Mangement Team (EMT) and
the Board of Directors of matters that may affect MuniFin’s
risk profile or risk strategy. The main responsibilities of the
Compliance function include reporting to the management
of the changes in the regulations affecting the operations
of MuniFin Group including their potential impact on
operational activities. In addition, the tasks include internal
communication, training and advice for the staff to ensure
compliance with the regulations, assessing internal
processes for ensuring compliance with the regulations as
well as communication with the supervising authorities and
monitoring the related actions within the Group.
In the third line of defence, an independent internal audit
regularly conducts risk-based audits in accordance with the
annual plan approved by the Board of Directors. The task of
internal audit is to conduct an independent review of the first
two lines of defence.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
3. Stress testing
MuniFin Group constantly conducts stress testing related to
its business in accordance with the stress testing program
approved by the Board of Directors. The annual ICAAP
and ILAAP processes include stress testing on group-
level solvency and liquidity adequacy. Risk management,
independent of the Group’s business, is responsible for
designing stress scenarios in cooperation with business
units. The main objective of the stress testing conducted in
2022 was to analyse the development of MuniFin Group’s
solvency and profitability in 2022–2025. Business, market
and credit risks and their estimated economic impact
under different circumstances were tested. In addition, the
liquidity adequacy of the Group was tested with several
different stress scenarios. As in previous years, the results
of the stress tests showed that with the current capital
requirements, the level of equity in the Group during
the period under review is sufficient even under very
unfavourable conditions. In addition, the Group’s total own
funds also fulfilled the 3% minimum leverage ratio CRR II
requirement, which entered into force in June 2021. In terms
of liquidity, stress tests showed that the liquidity of the Group
is sufficient even under very unfavourable conditions.
In late 2022, the Group also carried out a so-called reverse
stress testing as part of its recovery plan. This stress test
aims to find extremely negative scenarios that threaten the
Group’s business continuity, as well as the steps that the
Group can take to cope with the situation and continue its
business.
MuniFin Group took part in the ECB’s climate stress test in
the first half of 2022. The results were published in July. The
stress test concluded that the Group’s potential exposure to
transition risks caused by climate change is lower than the
average of all participating banks.
4. Capital adequacy management principles
MuniFin Group’s objectives regarding equity in relation to
risk-taking and the operating environment are defined as part
of the annual planning. The planning horizon extends to at
least the following three years, in order to be able to predict
the business performance trend and the sufficiency of own
funds with respect to the increasing capital requirements
arising from changing regulation and to be able to react to
potential needs for additional capitalisation in sufficient time.
The Board of Directors approves the capital adequacy plan
and monitors it. The Group updates its capital adequacy plan
at least annually and follows the implementation of the plan
quarterly.
The aim for the capital adequacy management is to monitor
the capital adequacy and to confirm that the Group’s capital
adequacy fulfills its targets and requirements set by financial
authorities to ensure continuity of the operations. Controlling
capital adequacy is continuous and an essential part of the
Group’s strategic planning process, which covers setting
strategic goals, specifying development projects and making
financial forecasts for the following years. This is done in
cooperation with management and the Board of Directors.
The Board of the Parent Company approves the final
strategy. Management ensures that the operative measures
of the Group correspond with the principles determined in
the strategy approved by the Board of Directors. As part of
the annual planning, the management prepares a business
plan for the coming year and business forecasts for the
years that follow. The Group’s risk position and its effect on
the Group’s financial status are also evaluated. Regular risk
analyses as well as various stress test scenarios are used for
evaluating and measuring risks. Based on these, the capital
adequacy plan is updated annually, and actions needed to
strengthen own funds are determined. The adequacy of own
funds is also monitored through monthly business analyses.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The Group calculates its capital adequacy based on the EU
Capital Requirements Regulation ((EU) No 575/2013) and its
amending regulation ((EU) No 876/2019) as well as Directive
(2013/36/EU). The capital adequacy requirement for credit
risk is calculated using the standardised approach, and the
capital adequacy requirement for operational risks using the
basic indicator approach. As the Group has neither a trading
book nor share and commodity positions, only currency risks
are taken into account in the capital adequacy calculations
for market risk. MuniFin Group’s FX risk is hedged by using
derivative contracts to swap all funding and investments
denominated in foreign currency into euros. The Group’s
lending and other customer finance items are denominated
in euros. The Group has no significant open FX positions.
In practice, a small temporary exchange rate risk may arise
due to collateral management in the clearing of derivatives
by central counterparties. This exchange rate risk is actively
monitored and hedged.
The credit ratings given by Standard & Poor’s, Moody’s
Investor Service and Fitch Ratings are used for determining
the risk weights used in the capital adequacy calculations.
The aforementioned companies are credit rating institutions
approved by the Finnish Financial Supervisory Authority
for capital adequacy calculations. In capital adequacy
calculations for the credit risk, the Group uses methods
for reducing the credit risk such as guarantees provided
by municipalities as well as deficiency guarantees given by
the State of Finland. For derivatives, netting agreements,
collateral agreements (ISDA/Credit Support Annex)
and guarantees granted by the Municipal Guarantee
Board (MGB) are used for reducing the capital adequacy
requirement related to the counterparty risk of derivative
counterparties.
Concurrently with this Report of the Board of Directors and
the Consolidated Financial Statements, the Group publishes
a separate Pillar III Disclosure Report on capital adequacy
and risk management, which is available in English on
MuniFin’s website.
5. Strategic risks
Strategic risk means that MuniFin Group would choose a
wrong strategy for pursuing financially profitable operations
or that the Group would fail to adapt its strategy to changes in
the operating environment.
The management of strategic risks is based on continuous
monitoring and analyses of customers’ needs, forecasts of
market trends, and analyses of changes in the competition
and the operating environment. Risks and their significance
are assessed annually as a part of the strategy process
and in connection with annual assessment of the Board of
Directors. The existing strategy extends to 2024, and its
need for updating is evaluated at least annually.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
6. Liquidity risks
6.1 Refinancing and liquidity risk
Refinancing risk means the risk related to refinancing of
the loans. The Group manages refinancing risk by limiting
the average maturity of the financial assets and liabilities.
The financing gap is calculated as the difference between
average maturity of assets (customer financing and liquidity
portfolio) and the average maturity of liabilities (funding
portfolio).
Liquidity risk means the risk of the Group not being able
to perform its payment obligations arising from settling
financial agreements or other financing activities on their
due date. The Group manages the liquidity risk by limiting the
LIQUID ASSETS, HQLA
(EUR 1,000) 31 Dec 2022 % 31 Dec 2021 %
Level 1 10,169,999 79% 10,899,629 82%
Level 2a 967,241 7% 910,009 7%
Level 2b 24,814 0% - -
Level N 1,781,017 14% 1,479,616 11%
Tot al 12,943,074 100% 13,289,256 100%
1
Commission Delegated Regulation (EU) 2015/61 and Commission Delegated Regulation (EU) 2018/1620.
short-term Liquidity Coverage Ratio (LCR) and Net Stable
Funding Ratio (NSFR) and the Survival Horizon for the long-
term liquidity.
In order to maintain its conservative liquidity and funding
risk profile as defined in RAF, MuniFin Group has identified
several sources of liquidity. Primary sources of liquidity
are short-term and long-term funding, liquidity portfolio,
repo markets and cash. Central Bank liquidity facility is a
secondary source of liquidity.
MuniFin Group follows the principle of prefunding and
acquires its funding in the form of short- and long-term
funding. This is to ensure that adequate liquidity is available at
any given time and in all market conditions. For this purpose,
the required minimum amount for the liquidity portfolio is
determined through scenario analyses to meet internal and
regulatory liquidity requirements. In the case that the Group
needed to acquire additional liquidity, it would first assess
the availability of funding from the capital markets in the form
of short-term or long-term funding. If this is not available,
the Group could utilise the liquidity portfolio as a source of
liquidity by selling assets or using them as collateral in the
repo markets. MuniFin Group has existing agreements in
place with counterparties to enter into bilateral repurchase
agreements (repo agreements). These repo agreements
could be used to cover funding redemptions in the short term
and to cover any unexpected changes in the liquidity position.
A key aspect of the Group’s liquidity and funding risk
management is the maintenance of a well-balanced, low risk
liquidity portfolio in the form of highly liquid assets. The overall
liquidity portfolio mainly consists of prefunding that is
raised from the markets, but not yet utilised for customer
financing. In case of a sudden outflow of funds, the Group
holds a liquidity portfolio at such a level that its LCR and
Survival Horizon have a sufficient buffer to continue normal
operations even under such conditions. The high-quality
liquid assets (HQLA) defined in LCR regulations
1
used to
manage the Group’s liquidity are presented in the adjacent
table.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The liquidity portfolio is divided into liquidity quality levels
so that level 1, 2a and 2b are considered high-quality liquid
assets. Assets on the liquidity level N are liquid in normal
market conditions (other liquid assets).
The secondary source of liquidity is a public funding source
in the form of the existing Central Bank liquidity facility, which
is considered as an alternative, if primary sources were
either not sufficient, available in a timely manner or the cost
of using primary sources of liquidity was considered too high.
Loans granted by MuniFin Group to the municipal sector are
accepted as collateral for this facility and the Group has pre-
pledged part of the loan portfolio in order to ensure access to
this liquidity source at any time, if required (Note 41 Collateral
given). In addition, the Group is able to increase the facility
through pledging additional municipal loans to the collateral
pool. The facility is tested regularly to ensure that the liquidity
is available intraday, if needed.
Liquidity stress testing is a key tool used by MuniFin Group to
assess liquidity adequacy. The main objective is to determine
whether the Group has sufficient liquidity to continue its
normal business operations under both business-as-usual or
baseline scenario and stress scenarios.
The Group prepares, in connection with the business
planning process, a Liquidity and Funding Plan (L&F Plan).
The Plan is approved by the Board of the Parent Company
and reviewed on a quarterly basis by the Risk Committee,
which reports its observations to the Board of Directors.
The L&F Plan and the quarterly review of the plan include
regular back testing. The L&F Plan is part of the Group’s
ongoing Internal Liquidity Adequacy Assessment Process
(ILAAP) and it includes forecasting and planning of funding
and liquidity position. The L&F Plan is aligned with the ICAAP
baseline scenario during the annual business planning
process. The plan aims at keeping the level of the Group’s
liquidity and funding within its risk appetite defined by the
Board of Directors. It also takes into account economic
perspective to ensure a sufficient long-term profitability for
the Group.
Within the ILAAP performed annually, the Group assesses
the adequacy of its liquidity resources to cover the forecast
liquidity needs under the business-as-usual and stress
scenarios. ILAAP is an integral part of the Group’s risk
management framework that includes other strategic
processes such as RAF, ICAAP, Recovery Plan and
remuneration framework. RAF formalises the interplay
between these processes. Stress tests are required to
assess the Group’s liquidity adequacy in a comprehensive,
integrated and forward-looking manner. ILAAP consists of a
baseline scenario and adverse scenarios and is fully aligned
with the ICAAP baseline scenario, the only exception being
the assumed restricted access to funding markets.
The Group aims to maintain strong credit ratings in all market
conditions to be able to execute its funding plan in an efficient
and cost-effective manner. To support the cost efficiency
and quick execution, the Group has in place debt issuance
programmes of standardised templates. Standardised
programmes provide the Group flexibility and ease of
execution. Furthermore, MuniFin Group uses bilateral loan
documentation with some funding counterparties. All funding
issued by MuniFin is explicitly guaranteed by the Municipal
Guarantee Board (MGB).
Funding concentration risk refers to the risk that the Group
is overly dependent on funding from a limited number
of products, markets, geographical areas, investors or
maturities. To mitigate the risk, MuniFin Group ensures the
funding is diversified across various products, markets,
maturities and investor types and by not placing too much
reliance on any single funding source. MuniFin Group aims
to keep this mix relatively stable, with the goal being to
ensure continuity of funding while simultaneously avoiding
overreliance on any specific market. To maintain access to
diversified funding sources, the Group aims to maintain its
good relationship with investors and arranging banks and
to actively seek new potential markets and investors. The
diversification of the Group’s funding requirements is set out
and planned for in detail through the annual L&F Plan.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The following tables present the maturity breakdown of MuniFin Group’s financial liabilities.
BREAKDOWN OF FINANCIAL
LIABILITIES BY MATURITY
31 Dec 2022 (EUR 1,000) 0–3 months 3–12 months 1–5 years 5–10 years over 10 years To t al
Liabilities to credit institutions 244,850 2,401 65,919 17,848 19,943 350,960
Liabilities to the public and
public sector entities 172,630 111,005 1,041,125 799,275 868,092 2,992,127
Debt securities issued 7,515,278 3,671,580 19,320,190 4,580,355 2,028,517 37,115,919
Provisions and other liabilities 574,192 - - - - 574,192
Tot al 8,506,949 3,784,986 20,427,233 5,397,478 2,916,552 41,033,198
BREAKDOWN OF FINANCIAL
LIABILITIES BY MATURITY
31 Dec 2021 (EUR 1,000) 0–3 months 3–12 months 1–5 years 5–10 years over 10 years To t al
Liabilities to credit institutions 741,520 583 14,530 22,256 32,368 811,257
Liabilities to the public and
public sector entities 97,142 146,115 1,235,342 1,014,067 1,370,356 3,863,022
Debt securities issued 5,104,498 5,407,504 18,745,582 4,318,196 2,802,048 36,377,828
Provisions and other liabilities 337,823 - - - - 337,823
Tot al 6,280,983 5,554,202 19,995,454 5,354,519 4,204,772 41,389,929
Breakdown of financial liabilities by maturity is presented
using carrying amounts and future interest payments
translated into euros using year-end foreign exchange rates.
Financial liabilities containing a call option are shown in the
maturity bucket of the next call date. Based on the current
call forecast, about 10–45% of callable liabilities are expected
to be called during 2023. In 2022, 19% of callable liabilities
were called at the next call date. Line item Liabilities to credit
institutions contains CSA collateral totalling EUR 244,440
thousand (EUR 741,110 thousand). These are presented in the
maturity bucket 0–3 months although their outflow date is not
known and is dependent on the development of derivative
fair values.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The following tables present the maturity breakdown of MuniFin Group’s derivatives at fair value.
BREAKDOWN OF FUNDING
DERIVATIVES BY MATURITY
31 Dec 2022 (EUR 1,000) 0–3 months 3–12 months 1–5 years 5–10 years over 10 years To t al
Derivative assets 178,219 137,873 610,048 1,111,638 669,325 2,707,103
Derivative liabilities -202,197 -270,480 -1,454,294 -1,046,791 -1,642,348 -4,616,111
Interest flows related to
derivative assets and liabilities 46,388 -147,629 -359,775 -356,449 -121,189 -938,655
BREAKDOWN OF FUNDING
DERIVATIVES BY MATURITY
31 Dec 2021 (EUR 1,000) 0–3 months 3–12 months 1–5 years 5–10 years over 10 years To t al
Derivative assets 89,668 158,549 567,851 368,541 815,067 1,999,676
Derivative liabilities -169,425 -1,032,622 -405,040 -110,008 -507,199 -2,224,294
Interest flows related to
derivative assets and liabilities 155,169 236,860 617,799 155,307 56,189 1,221,324
The Group hedges all of its funding to floating rate euros.
In addition, all lending is hedged to floating rates. Due to the
strategy of earnings stabilisation, part of the fixed-rate loan
exposure might be left unhedged. For evaluating the impact
of derivatives, the interest flows of derivative assets and
liabilities are shown as net amount on one line. Derivatives
containing a call option are shown in the table in the maturity
bucket during which the derivative can be called on the next
call date.
The Group has presented the maturities of financial assets
based on their maturity dates in Note 18 Breakdown of
financial assets and liabilities at carrying amount by maturity.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
6.2 Market liquidity risk
Market liquidity risk means that the Group would fail to realise
or cover its position at the market price, because the market
lacks depth or is not functioning due to a disruption.
The Group monitors the liquidity of markets and products on
a continuous basis. In addition, established market standards
are observed when derivative contracts are transacted.
Almost all market values of debt securities valued at fair
value are calculated based on quotations received from the
market. For the remaining debt securities, the market value
is calculated using other market information. The valuation
techniques and valuation inputs are described in more detail
in Note 17 Fair values of financial assets and liabilities.
Despite the market turbulence, the Group continued to
acquire funding without interruption during the year. MuniFin
Group’s long-standing funding strategy is to diversify its
funding sources across multiple currencies, maturities,
geographical areas and investor groups. This strategy,
combined with MuniFin’s good reputation among investors
as well as the safety of investments in the Finnish municipal
sector has proved highly successful during the upheaval of
monetary and security policies: the Group had strong access
to capital markets throughout the year.
7. Credit risk
Credit risk means the risk of a counterparty defaulting on its
commitments to the Group. Credit risk has been identified
as a material risk in the RAF but is mitigated by the loan
guarantees and/or collaterals as well as the fact that MuniFin
only finances public-sector entities with a zero-percent risk
weighting. Customer financing is one source of credit risk,
but credit risk can also arise from other types of receivables,
such as bonds, short-term debt instruments and derivative
contracts as well as off-balance sheet items such as
unused credit facilities, limits and guarantees. In addition,
geographical concentration and settlement risks are
considered as credit risks.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The following table presents the Group’s maximum exposure to credit risk grouped by the items on the statement of financial position.
31 Dec 2022 31 Dec 2021
MAXIMUM EXPOSURE TO CREDIT RISK
(EUR 1,000)
Amortised cost and
Fair value through other
comprehensive income
, of which expected
credit losses
Fair value through
profit or loss *
Amortised cost and
Fair value through other
comprehensive income
, of which expected
credit losses
Fair value through
profit or loss *
Cash and balances with central banks 2 - - 8,399,045 0 -
Loans and advances to credit institutions 9,625,488 -109 - 1,417,310 -82 -
Loans and advances to the public and public sector
entities 29,084,839 -800 59,522 29,139,898 -1,148 74,145
Debt securities 1,624,734 -45 3,162,034 1,302,354 -41 3,539,074
Derivative contracts - - 2,707,103 - - 1,999,676
Other assets 1,219,541 -203 - 240,682 -13 -
Credit commitments (off-balance sheet item) 2,463,964 -14 - 2,592,873 -4 -
Tot al 44,018,569 -1,171 5,928,659 43,092,161 -1,289 5,612,895
* Includes all financial assets measured at fair value through profit or loss (IFRS 9 classifications: designated at fair value through profit or loss, mandatorily at fair value through profit or loss and
fair value through profit or loss).
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The Act on the Municipal Guarantee Board (MGB Act) sets
limits on the operations of MuniFin Group, which can also be
considered as an important credit risk management tool. The
Municipal Guarantee Board (MGB) is an institution governed
by the public law, whose purpose under the MGB Act is to
secure and develop the joint municipal funding. To accomplish
this purpose the MGB can grant guarantees to the funding of
credit institutions controlled or owned directly or indirectly
by municipalities if the funding is used for the financing of
municipalities, joint municipal authorities, wellbeing services
counties, joint county authorities for wellbeing services and
for those wholly owned by the aforementioned parties as
well as non-profit corporations and other non-profit entities
nominated by the Housing Finance and Development Centre
of Finland (ARA). Financing, derivatives and other services
can only be offered to customers and objects in accordance
with the MGB Act. All funding issued by MuniFin has a MGB
guarantee. In addition, MuniFin has guarantees granted by
the MGB to mitigate the counterparty credit risk of some
derivative counterparties.
In addition to the MGB Act, a material credit risk management
principle is that all customer financing and the derivatives
offered to customers have to obtain the so-called zero risk-
weight in MuniFin Group’s capital adequacy calculation. As
a business model, this zero risk requirement for all customer
financing is different to those of other credit institutions and
the credit risk principles inherent and required in their credit
risk policies. MuniFin Group’s Credit risk policy and credit risk
management practices rely significantly on this principle.
MuniFin’s customers consist of municipalities, joint municipal
authorities and municipality-controlled entities, wellbeing
services counties and joint county authorities for wellbeing
services, other units of wellbeing services counties that are
wholly owned or under control of wellbeing services county
administration and wellbeing services enterprises, as well as
non-profit corporations and other non-profit organisations
nominated by the Housing Finance and Development Centre
of Finland (ARA). MuniFin Group may only grant loans and
leasing financing without a separate security directly to a
municipality, joint municipal authority, wellbeing services
county or joint county authority for wellbeing services. For
others, loans must be secured with an absolute guarantee
issued by a municipality, joint municipal authority, wellbeing
services county or joint county authority for wellbeing
services or a real estate collateral and a state deficiency
guarantee. The guarantee or guarantee together with a real
estate collateral has to fully cover the financing provided.
Guarantees and the fair value of collateral received are also
taken into account in the calculation of expected credit
losses. The Group does not bear the residual value risk for
the objects of its leasing services. MuniFin Group has not had
credit losses from the financing of its customers after the
realisation of any real estate collateral and guarantees have
taken place.
Municipal customers are divided into three sectors:
municipalities, joint municipal authorities and municipal
companies. By law, a Finnish municipality cannot default
(Bankruptcy Act 120/2004). The municipalities have an
unlimited right to increase local income tax rates and due
to this, together with other elements of autonomy, the
Finnish municipal sector has, similar to sovereigns, a zero
credit risk weighting in the capital adequacy calculation
of credit institutions. Finnish municipalities and cities can
also establish joint municipal authorities to provide services
that they are legally required to provide for their citizens or
undertake regional development activities. Municipalities
are jointly members of these joint municipal authorities
and are commonly responsible for their funding and other
liabilities. All loans to municipal companies are guaranteed by
municipalities (or joint municipal authorities). Thus, there is
always a municipality, that cannot default by law, to carry the
risk of default. When a loan has a 100% absolute guarantee
from a municipality or a joint municipal authority, MuniFin
Group can apply for payment directly from the guarantor
in accordance with the terms of the loan. The guarantor is
committed based on the guarantee commitment to pay the
interest and other ancillary costs in addition to the principal.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The new wellbeing services counties began their operations
in the beginning of 2023. The operative work of the wellbeing
services counties is being largely funded by the central
government, but the counties have government authorisation
to acquire long-term funding for their investments. The
counties can also independently seek short-term funding.
In terms of financing, the legislation adopted in the summer
of 2021 allows MuniFin to continue to act as a lender
and counter party to the loans and other liabilities that
were transferred to the counties at the start of 2023. The
amendments to the Act on the Municipal Guarantee Board
passed by the Finnish Parliament in April 2022 allow MuniFin
to also finance new investments and other new financing
needs by the wellbeing services counties. In January 2022,
the Finnish Financial Supervisory Authority (FIN-FSA) decided
that like the central government and municipalities, wellbeing
services counties will also fall in the zero-risk category in the
capital adequacy regulation of credit institutions. This decision
simplifies the counties’ financing arrangements because it
means that government guarantees are not required.
At this stage, wellbeing services counties are not liable
for the guarantees for MuniFin’s funding, because unlike
municipalities, wellbeing services counties are not members
of the Municipal Guarantee Board (MGB). For this reason, the
MGB has decided to set an annual limit to the amount of new
financing MuniFin can grant to wellbeing services counties.
The MGB’s limit for MuniFin’s new short-term financing
to wellbeing services counties, i.e. commercial papers to
wellbeing services counties, is EUR 900 million in 2023.
The housing customer group consists of different types
of housing institutions: institutions owned or controlled
by municipalities (or joint municipal authorities) and
state-subsidised housing institutions and also in the future
the companies that are wholly owned or under control of
wellbeing services counties or joint county authorities for
wellbeing services. Loans for housing companies owned by
municipalities or joint municipal authorities are guaranteed
by municipalities, or these loans can also be categorised as
state-subsidised housing loans. In such cases there is real
estate collateral and a deficiency guarantee from the State
of Finland. State-subsidised housing institutions are defined
as corporations designated by state authority and engaged
in the renting or production and maintenance of housing, or
corporations controlled by them. The housing companies
are nominated by the Housing Finance and Development
Centre of Finland (ARA), a governmental agency operating
under the supervision of the Ministry of the Environment.
Loans for housing companies have a deficiency guarantee
from the State of Finland that covers the residual risk over the
collateral value of the respective property. When a loan has a
deficiency guarantee by the State of Finland, primary pledge
of mortgage collateral is mainly required unless the loan is a
state-subsidised housing loan granted for a municipality or
a joint municipal authority in which case there is no collateral
required by law. The amount of the primary pledge must be
at least 1.3 times the amount of the loan. Under deficiency
guarantee, the State of Finland is responsible for the primary
debt in respect of the part that is not covered from the
liquidation of the mortgage collateral.
Despite MuniFin Group’s business model, which is based
on the zero risk-weighting customers, the Group has a risk
rating system for all customers, which assigns a risk score
to the customer as part of the credit granting process. In
addition, independent Risk Management prepares an annual
analysis of all customers, which identifies their respective
risk rating. The annual analysis and update of the risk rating is
based on the financial statements, the report of the board of
directors and other available information. The analysis takes
into account the environmental, social and governance risks
(ESG) insofar as information about the customer is available
for assessment. The assessment highlights the potential
impacts of climate and environmental risks, which may
materialise to customers either directly as physical risks or as
transition risks related to preparing for climate change. The
customer’s risk rating will affect the need for further analysis
of the customer in the process of granting financing, the
financing decisions, decision-making power inside the Group
and possibly also the pricing. The Group has customer-
specific credit limits in use. In addition, MuniFin Group
calculates the loan-to-value (LT V) ratio for its loans with real
estate collateral and regularly monitors the development of
LTV values.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The following table shows the risk rating (of which risk rating
5 represents the best creditworthiness) distribution of the
Group’s customer financing in relation to total capital, which
includes lending, leased assets, municipal certificates and
off-balance sheet credit commitments.
RISK RATING 31 Dec 2022 31 Dec 2021
5 22.8% 22.9%
4 30.6% 28.7%
3 38.9% 38.6%
2 6.6% 8.4%
1 1.2% 1.4%
Tot al 100.0% 100.0%
In addition to the above mentioned, the Group’s credit risk
management is based on proactive customer relationship
management, customer knowledge (KYC), careful selection
of counterparties, credit rating and volume limits for
counterparties, trustworthy and professional staff, decision-
making powers, comprehensive documentation and on-
going internal monitoring and reporting.
The Group defines the non-performing exposures (NPE) as
receivables that fulfil at least one of the criteria’s below.
• Significant receivables past due more than 90 days;
• MuniFin Group’s Credit Group’s (customer financing) or
Capital Markets and Sustainability Management Team’s
(liquidity portfolio) assessment that it is probable that
the debtor is not likely to pay its obligation in full without
realisation of the collateral, regardless of whether there
have been any delays in payments or how many days the
payments have been past due.
Non-performing exposures are treated as stage 3
receivables in the calculation of expected credit losses.
Forborne exposures include exposures that have been
renegotiated due to the customer’s financial difficulties.
Details about the principles applied to forborne and modified
exposures are described in the accounting policies (Note 1) in
Section 9.3 Forborne and modified loans. The non-performing
and forborne exposures are disclosed in Note 26 Credit risk
of financial assets and other commitments in the table Non-
performing and forborne exposures.
Impairments for loans and other financial assets, which are
classified according to IFRS 9 standard at amortised cost
(AC) or at fair value through other comprehensive income
(FVOCI), are measured using the expected credit loss model
under IFRS 9 standard. In addition, lease agreements and off-
balance sheet credit commitments are subject to expected
credit loss calculation due to the credit risk involved in the
contracts. The methods used for calculating expected
credit losses are described in the accounting policies (Note
1) in Section 9. Impairment of financial assets. Quantitative
information on the Group’s expected credit losses and their
development during the financial year is presented in the
Notes 14 Credit losses and impairments on financial assets
and 26 Credit risks of financial assets and other commitments.
The amount of the Group’s expected credit losses in relation
to the Group’s statement of financial position is very low,
0.002% (0.003%). Expected credit losses in relation to the
total assets and commitments included in the calculations
are 0.003% (0.003%). The amount of expected credit losses
is materially influenced by the Group’s conservative risk
management principles, in particular the guarantees and
collaterals received by the Group, as well as the customer
base and the high credit ratings of counterparties.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
MuniFin Group finished ECL IT and model development
during the second half of the year 2022. With the
development, changes have been made to the assessment
criteria for significant increase in credit risk (SICR), and
to the models of probability of default (PD) and loss given
default (LGD). Expected credit losses increased by EUR
0.4 million due to the changes in models and parameters.
The Group recorded an additional discretionary provision
(management overlay) of EUR 0.4 million at the end of
2021 to take into account these IT and model changes.
The amount of additional discretionary provision was
increased at the end of June 2022 by EUR 0.5 million.
The additional discretionary provision based on a group-
specific assessment was removed during the end of 2022. In
addition, macro scenarios were updated to take into account
forward-looking information at the end of financial year.
MuniFin Group is also exposed to credit risk from its
liquidity portfolio investments and derivative instruments. In
selecting counterparties, MuniFin evaluates credit risk with
principles and limits, approved by the Parent Company’s
Board of Directors, based on external credit ratings. The
credit rating of investments is one of the key indicators used
by the Group to make investment decisions concerning
its liquidity portfolio. Nominal values of debt securities
and equivalent credit values of derivatives (fair value
method) are used in monitoring credit risk. Counterparties
are also regularly subject to an internal risk assessment,
which assesses economic and qualitative factors as well as
ESG risks by comparing the individual issuer’s ESG score
with the reference value of the general market index for the
asset class.
The following table presents the credit rating breakdown of
the liquidity portfolio investments.
CREDIT RATING 31 Dec 2022 31 Dec 2021
AAA 60.0% 59.2%
AA+ 7.6% 8.8%
AA 12.9% 11.5%
AA- 13.5% 15.7%
A+ 3.4% 1.4%
A 2.5% 3.3%
A- 0.1% 0.0%
Tot al 100.0% 100.0%
In addition, MuniFin Group has central bank deposits in total
EUR 8,112 million (EUR 8,435 million).
The Group limits the credit risk arising from its derivative
contracts with ISDA Credit Support Annexes. MuniFin Group
has 36 (36) derivative counterparties with which it has valid
derivative contracts. The Group has the above-mentioned
collateral agreement with all of these counterparties.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The Credit Valuation Adjustment (CVA) that measures
counterparty credit risk and MuniFin Group’s own Debt
Valuation Adjustment (DVA) are both taken into account
when calculating credit risk exposures arising from derivative
counterparties. The CVA is estimated for each derivative
counterparty by calculating the Group’s expected positive
exposure throughout the maturity of the derivative portfolio,
taking into account the probability of default and the
estimated amount of loss in the possible event of default.
Input data for the calculation is based on the terms of
CSA agreements, generally accepted assumptions in the
markets on the loss given default and expected probabilities
calculated based on credit default swaps (CDS). Similarly, the
DVA is determined on the basis of MuniFin Group’s expected
negative exposures, taking into account the probability of
MuniFin’s own default and the loss given default.
BREAKDOWN OF NOMINAL VALUE OF DERIVATIVE CONTRACTS BY
COUNTERPARTY CREDIT RATING
(EUR 1,000) 31 Dec 2022 31 Dec 2021
Finnish municipalities 1,597,248 1,743,647
Central counterparty 43,840,377 40,828,879
AA 14,855,710 15,426,607
A 13,570,171 12,357,720
BBB 12,133 70,699
Tot al 73,875,640 70,427,552
GIVEN AND RECEIVED CASH COLLATERAL BASED ON CSA AGREEMENTS
(EUR 1,000) 31 Dec 2022 31 Dec 2021
Given collateral -1,400,620 -1,310,650
Given collateral to central counterparty -1,219,744 -238,943
Received collateral 244,440 741,110
Received collateral from central counterparty 570,922 333,295
Net collateral -1,805,002 -475,188
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
MuniFin Group uses central counterparties (CCPs)
in the clearing of standard over-the-counter (OTC)
derivative contracts, as required by the European Markets
Infrastructure Regulation (EMIR). In this model, at the end
of a clearing process, a CCP becomes the counterparty to
each cleared trade. The purpose of CCP clearing is to reduce
counterparty risk. Two global banks provide clearing broker
services to the Group. The variation margin of the derivatives
with the CCPs is based on the daily margining of the cash
collateral (Collateralised-to-Market, CTM).
During the financial year, MuniFin Group prepared for the
implementation of the European Commission’s delegated
regulation (2016/2251) regarding the use of securities as
initial margin in over-the-counter derivatives, which will enter
into force in phases. The initial margin requirement became
binding for MuniFin in September 2022, and MuniFin reached
the readiness to use securities for this purpose by the end of
the month.
MuniFin Group may also be exposed to settlement risks in the
course of its operations in respect to issued bonds, customer
financing, liquidity portfolio investments or derivative
transactions. The Group’s customer financing transactions
are dependent on the operations of domestic payment banks
and similarly the capital market transactions are dependent
on the operations of the Group’s international payment banks
and clearing parties. In order to minimise the credit risk
associated with clearing and settlement, transactions are in
principle carried out through delivery against payment.
Taking into account the nature of MuniFin Group’s business
model, the Group has acknowledged risk concentration
in customer financing in i.e. geographical areas (locally),
customer types (municipality sector, state-subsidised
housing production) and collaterals (mortgages). The
Group’s largest subportfolio in customer financing is
for municipality sector. This risk concentration on the
municipality sector is unavoidable and inherent to MuniFin’s
business model. In addition, a considerable portion of
the exposure to customers is indirectly related to Finnish
sovereign risk due to the deficiency guarantee in loan
arrangements for the state-subsidised housing production.
This is inextricably linked to MuniFin’s business model and to
its place in the Finnish social system.
Furthermore, MuniFin has been established specifically
to finance the municipal sector and social housing and
its operations are limited by the MGB Act. Therefore, the
concentration risk inherent in the business model cannot be
significantly modified. On the other hand, all of the Group’s
receivables are in the zero risk weight class in capital
adequacy calculations and therefore the concentration
risk is acceptable considering the Group’s business model
and in line with the Group’s business strategy. In addition,
in the calculation of large exposures, all receivables from
customers are zero after mitigation techniques. Due to
these factors, the Group accepts the concentration risk in its
customer financing as inherent to its business model.
Concentration risk is also inherent in the liquidity portfolio
due to investments being made in a narrow selection of high-
quality liquid assets. In order to manage this to the extent
possible, MuniFin Group defines country-specific limits on
the concentration of its liquidity portfolio in any single country.
The following table presents the geographical distribution of
the liquidity portfolio investments.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
COUNTRY/
COUNTERPARTY 31 Dec 2022 31 Dec 2021
Canada 14.9% 11.8%
Finland 14.5% 16.0%
France 12.1% 12.1%
Norway 11.2% 10.5%
Sweden 9.1% 10.5%
Denmark 7.4% 7.3%
Germany 6.0% 6.3%
Supranational 5.5% 6.4%
The Netherlands 3.8% 3.8%
South Korea 3.3% 3.0%
Australia 2.8% 2.1%
Belgium 2.7% 2.8%
New Zealand 2.1% 2.6%
Luxembourg 1.7% 1.6%
Japan 1.5% 0.8%
Austria 0.8% 0.8%
Great Britain 0.5% 1.1%
Switzerland 0.1% 0.4%
Tot al 100.0% 100.0%
In addition, MuniFin Group has central bank deposits in total
EUR 8,112 million (EUR 8,435 million).
MuniFin’s credit risk position remained stable and at a low
level during the year. It is expected to remain stable and in line
with the Group’s credit risk strategy also in the future.
8. Market risk
Market risk is the risk of the Group incurring a loss as a result
of an unfavourable change in market price or its volatility.
Market risks include interest rate, foreign exchange, share
price and other price risks.
MuniFin Group has identified under RAF the following
sources of material market risks: Interest rate risk (Interest
Rate Risk in the Banking Book, IRRBB), FX risk and spread risk
as well as fair valuation risk.
The Group hedges its market risk with derivative contracts.
Derivative contracts may only be used for hedging
purposes. The Group applies fair value hedge accounting
in accordance with IFRS 9 and IAS 39 standards. The
application of hedge accounting is described in more detail
in the accounting policies (Note 1) in Section 10. Hedge
accounting and quantitative information on current hedging
relationships and their impact on earnings is presented in the
Notes 25 Hedge accounting and 8 Net income from hedge
accounting. The Group also makes use of the fair value option
(FVO) permitted by IFRS 9 standard in some of its hedging
relationship to eliminate or to significantly reduce accounting
mismatch due to hedging. The use of fair value option is
described in the accounting policies (Note 1) in Sections
7.1.6 and 7.2.3 Designated at fair value through profit or loss.
Quantitative information of the use of fair value option is
presented in Note 6 Financial assets and liabilities designated
at fair value through profit or loss and in Note 16 Financial
assets and liabilities.
8.1 Interest rate risk
MuniFin Group manages the interest rate risk arising from
the business operations by means of derivative contracts.
Interest rate risk arises mainly from the difference in euribor
rate terms between assets and liabilities.
MuniFin Group’s strategy for interest rate risk in the banking
book (IRRBB) is to ensure sustainable profitability regardless
of the level of interest rates. Therefore, the focus is to stabilise
earnings by minimising NII (Net Interest Income)risk measure.
Economic Value of Equity (EVE) of interest rate sensitivity is a
secondary measure but also kept within risk appetite.
The main principle for managing the Group’s interest rate
risk hedging is to utilise interest rate swaps to hedge fixed
rate exposures back-to-back to floating rate. The back-to-
back interest rate swaps (IRS) replicate all the details of the
underlying liability, asset or portfolio of assets to offset the
risk of the underlying transaction.
However, given the strategy of earnings stabilisation, the
Group may decide on strategic mismatch position, i.e. leave
fixed rate exposures unhedged in order to steer the Group’s
net interest income towards the objective of earnings
stabilisation. The strategic mismatch position is created
using assets only and includes both fixed and revisable rate
loans as well as fixed rate investments in the liquidity portfolio.
Derivatives are not used in the creation of the strategic
mismatch.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
8.1.1 NII risk
NII risk refers to the negative impact of interest rate changes
on the Group’s net interest income. Several different
scenarios are used to measure interest rate risk, the most
unfavourable being the one considered. The impact is
examined in relation to the Group’s total net interest income
for the previous year. The Group measures the NII risk both
with and without the zero floor option. The following table
takes into account the zero floor option in the loans.
NII RISK
(EUR 1,000) Impact
In relation to net
interest income
31 Dec 2022 -25,160 9.0%
31 Dec 2021 0 0.0%
The following scenarios are used in calculating the NII risk:
1. Parallel shock up (+50 bp)
2. Parallel shock up (+200 bp)
3. Parallel shock down (-50 bp)
4. Parallel shock down (-200 bp)
5. Steepener shock (short rates down and long rates up)
6. Flattener shock (short rates up and long rates down)
7. Short rates shock up
8. Short rates shock down.
At the end of 2022, the least favourable scenario was based
on the assumption of the parallel shock down of 200 basis
points, which had an impact of EUR -25.2 million and 9.0%
in relation to NII. All scenarios in NII risk calculations had a
positive impact at the end of comparison period.
8.1.2 Economic Value of Equity
Economic Value of Equity describes the interest rate
sensitivity of the present value of the statement of financial
position. It is measured by calculating the change in the
present value of interest rate sensitive cash flows for different
interest rate curve changes. Several interest rate scenarios
are used to measure interest rate risk, the most unfavourable
being the one considered. The impact is examined in relation
to the Group’s total own funds. The Group measures the
Economic Value of Equity both with and without the zero floor
option. The following table below takes into account the zero
floor option in the loans.
ECONOMIC VALUE OF EQUITY
(EUR 1,000) Impact
In relation to
own funds
31 Dec 2022 -33,530 2.26%
31 Dec 2021 -13,180 0.75%
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
8.1.3 Basis risk
The basis risk measure captures interest rate risk that results
from narrowing or widening of tenor basis swap spreads. The
impact is examined in relation to the Group’s total net interest
income for the previous year. The figures below take into
account the zero floor option in the loans.
BASIS RISK
(EUR 1,000) Impact
In relation to net
interest income
31 Dec 2022 -8,980 3.21%
31 Dec 2021 -450 0.19%
The worst of two scenarios is used to measure basis risk:
• Narrowing basis swap spreads assuming that the basis
swap spreads are narrowed to zero from their current level
• Widening basis swap spreads based on basis swap spread
changes experienced during the euro area crises in 2011.
8.2 FX risk
MuniFin Group’s FX risk strategy is in line with its conservative
market risk management. The Group does not bear any
material foreign exchange risk. The Group’s lending and other
customer finance items are denominated in euros. FX risk
is hedged by translating all foreign currency denominated
funding and liquidity investments into euros using derivatives.
However, due to collateral management related to the
Central Counterparty clearing (CCP) activities, the Group
may temporarily incur minor FX risk. The functionality of the
cross-currency derivative markets is always assessed before
entering into new funding or liquidity investments in order to
ensure that currency hedges can be put in place according
to the hedging strategy in order to hedge all transactions
back to euros. Furthermore, all foreign currency denominated
funding transactions with early call options are hedged fully
for potential call situations.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The following tables present the breakdown of the Group’s financial assets and liabilities into domestic and foreign currency denominated items.
FINANCIAL ASSETS IN DOMESTIC AND FOREIGN CURRENCIES
31 Dec 2022
(EUR 1,000) Domestic currency Foreign currency Tota l
Cash and balances with central banks 2 - 2
Loans and advances to credit institutions 9,578,824 46,663 9,625,488
Loans and advances to the public and public sector entities 28,115,321 - 28,115,321
Debt securities 1,867,201 29,392 1,896,594
Shares and participations - - -
Other assets 1,008,232 211,310 1,219,541
Tot al 40,569,580 287,366 40,856,945
FINANCIAL LIABILITIES IN DOMESTIC AND FOREIGN CURRENCIES
31 Dec 2022
(EUR 1,000) Domestic currency Foreign currency Tota l
Liabilities to credit institutions 2,332,623 - 2,332,623
Liabilities to the public and public sector entities 2,509,865 19,720 2,529,585
Debt securities issued 14,918,101 20,673,964 35,592,065
Provisions and other liabilities 574,192 - 574,192
Tot al 20,334,782 20,693,684 41,028,465
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
FINANCIAL ASSETS IN DOMESTIC AND FOREIGN CURRENCIES
31 Dec 2021
(EUR 1,000) Domestic currency Foreign currency Tota l
Cash and balances with central banks 8,399,045 - 8,399,045
Loans and advances to credit institutions 1,388,667 28,643 1,417,310
Loans and advances to the public and public sector entities 28,122,834 - 28,122,834
Debt securities 4,811,225 30,202 4,841,428
Shares and participations - - -
Other assets 238,930 - 238,930
Tot al 42,960,701 58,845 43,019,546
FINANCIAL LIABILITIES IN DOMESTIC AND FOREIGN CURRENCIES
31 Dec 2021
(EUR 1,000) Domestic currency Foreign currency Tota l
Liabilities to credit institutions 2,801,016 - 2,801,016
Liabilities to the public and public sector entities 3,262,800 61,885 3,324,685
Debt securities issued 14,636,794 20,690,731 35,327,525
Provisions and other liabilities 310,555 27,267 337,823
Tot al 21,011,165 20,779,883 41,791,049
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The following tables present the currency breakdown of the Group’s financial assets and liabilities at their carrying amount and their corresponding hedges.
DISTRIBUTION OF FINANCIAL ASSETS BY CURRENCY
BASED ON CARRYING AMOUNTS AND HEDGES
31 Dec 2022
(EUR 1,000) USD GBP NOK CHF Other currencies Tota l
Loans and advances to credit institutions 45,629 386 3 388 258 46,663
Debt securities 29,392 - - - - 29,392
Other assets 211,310 - - - - 211,310
Currency risk total 286,331 386 3 388 258 287,366
Hedging derivatives -282,533 - - - - -282,533
Tot al 3,798 386 3 388 258 4,832
DISTRIBUTION OF FINANCIAL LIABILITIES BY CURRENCY
BASED ON CARRYING AMOUNTS AND HEDGES
31 Dec 2022
(EUR 1,000) USD GBP NOK CHF Other currencies Tota l
Long-term funding -7,181,725 -2,701,197 -3,134,281 -994,265 -2,362,082 -16,373,549
Short-term funding -3,460,032 -860,103 - - - -4,320,135
Provisions and other liabilities - - - - - -
Currency risk total -10,641,757 -3,561,299 -3,134,281 -994,265 -2,362,082 -20,693,684
Hedging derivatives 10,641,757 3,561,299 3,134,281 994,265 2,362,082 20,693,684
Tot al 0 0 0 0 0 0
Net currency position 3,798 386 3 388 258 4,832
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
DISTRIBUTION OF FINANCIAL ASSETS BY CURRENCY
BASED ON CARRYING AMOUNTS AND HEDGES
31 Dec 2021
(EUR 1,000) USD NOK GBP JPY Other currencies Tot a l
Loans and advances to credit institutions 27,726 3 411 3 499 28,643
Debt securities 30,202 - - - - 30,202
Other assets - - - - - -
Currency risk total 57,928 3 411 3 499 58,845
Hedging derivatives -30,202 - - - - -30,202
Tot al 27,726 3 411 3 499 28,643
DISTRIBUTION OF FINANCIAL LIABILITIES BY CURRENCY
BASED ON CARRYING AMOUNTS AND HEDGES
31 Dec 2021
(EUR 1,000) USD NOK GBP JPY Other currencies Tot a l
Long-term funding -8,070,182 -2,608,081 -2,031,462 -1,551,376 -3,138,643 -17,399,744
Short-term funding -3,115,038 - -237,835 - - -3,352,872
Provisions and other liabilities -27,267 - - - - -27,267
Currency risk total -11,212,487 -2,608,081 -2,269,297 -1,551,376 -3,138,643 -20,779,883
Hedging derivatives 11,185,219 2,608,081 2,269,297 1,551,376 3,138,643 20,752,616
Tot al -27,267 0 0 0 0 -27,267
Net currency position 459 3 411 3 499 1,376
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
8.2.1 Currency position
The currency position is calculated as the euro-denominated
difference between assets and liabilities in various
currencies.
CURRENCY POSITION
(EUR 1,000)
Currency
position
31 Dec 2022 4,833
31 Dec 2021 1,376
8.3 Price risk
Price risk refers to the possibility of changes in the market
values of the prefunding liquidity investments due to a change
in the market’s required return as a consequence of a change
in the investment’s risk or in the market’s risk sensitivity. Main
principle in portfolio management is to guarantee a sufficient
amount of earnings within the liquidity requirements, such as
LCR, NSFR and Survival Horizon.
SPREAD RISK
(EUR 1,000) Impact
In relation to
own funds
31 Dec 2022 -37,200 2.5%
31 Dec 2021 -22,700 1.3%
The change in required return is calculated at a 99.9%
confidence level.
8.4 Fair valuation risk
MuniFin Group has identified fair valuation risk as a material
risk for its operations. Unrealised fair value changes of
financial instruments increase the volatility of profits. In
addition to the profit, the Group’s own funds are also affected
by valuations measured at fair value through other
comprehensive income (OCI). The classification and
measurement of financial instruments are described in more
detail in the accounting policies (Note 1) in Section 7.
Classification, recognition and measurement of financial
instruments. The volatility of the fair valued instruments arises
from changes in market risk factors, such as tenor basis
spreads as the spread between different interest rate curves
changes. In accordance with the market practice and IFRS 13
standard, the Group discounts the financial assets and
liabilities measured at fair value and the hedged items in
hedge accounting with the swap curve and the hedging
derivatives with the OIS curve, which causes a significant part
of the Group’s valuation volatility. The unrealised fair value
changes of financial instruments are recorded in the income
statement under line item Net income from securities and
foreign exchange transactions and they are specified in Note 5.
In addition, the unrealised fair values of financial instruments in
hedge accounting (both hedged items and hedging
instruments) are recorded under line item Net income from
hedge accounting and specified in Note 8. The Group
continuously monitors and analyses the volatility arising from
valuations and prepares for its potential profitability and
solvency impacts. A sensitivity analysis related to valuations is
presented in Note 17 Fair values of financial assets and liabilities.
During the reporting period, unrealised fair value changes
of financial instruments caused typical earnings volatility for
the Group. 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. The Group
continuously monitors and analyses the volatility arising from
valuations and prepares for any impacts this may have on its
profit and capital adequacy.
9. Operational risks
Operational risk refers to the risk of loss due to insufficient
or failed internal processes, insufficient or failed policies,
systems or external factors. Operational risks also include
risks arising from failure to comply with internal and external
regulation (compliance risk) and legal risks. Operational risks
may result for example in expenses, payable compensation,
loss of reputation, false information on position, risk and
financial results or the interruption of operations.
Operational risks are recognised as part of the Group’s
operations and processes. This has been implemented
with an annual mapping of operational risk, which is carried
out by units through a self-assessment. The operational
risk management is the responsibility of each division and
unit. In addition, the Risk Management and Compliance
division supports the other divisions and units and has
the responsibility for coordinating the management of
operational risks.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
MuniFin Group uses various methods for managing
operational risks. The Group has internal policies approved by
the Board of Directors and supplementing internal guidelines
approved by the management in order to guide operations.
Operational risks are also covered by the RAF approved by
the Board of Directors of the Parent Company. Key duties
and processes have been charted and described. Internal
instructions and processes are updated on a regular basis,
and compliance with them is supervised. The tasks related to
business activities, risk control and accounting are separated.
The Group has adequate substitution systems to ensure the
continuity of key functions. The expertise of the personnel
is maintained and developed through regular development
discussions and training plans. The Group has a contingency
plan for situations in which business and IT operations are
interrupted. The plan is designed to ensure that the Group is
able to continue functioning and to limit its losses in different
disruptive scenarios. The annual mapping of operational
risks and the operational risk event report process support
the Group’s continuity planning. In addition, the Group has
insurance policies related to its operations and the level of
the insurance coverage is assessed on a regular basis.
MuniFin Group’s Compliance unit continuously monitors
the development of legislation and regulations issued by
authorities relevant to the Group’s operations and ensures
that any regulatory changes are appropriately responded to.
The legislation and regulations concerning the operations
of credit institutions have faced significant changes during
the past few years and will continue to change in the future,
which creates challenges for the Group’s compliance. The
Group has tried to minimise the risks related to this with an
active contact with the authorities and interest groups as well
as with the organisation of the Group’s internal Compliance
(incl. system support, evaluation of effects, reporting and
implementation).
The Group has significant on-going information system
and business process related projects aimed at improving
the quality, efficiency and regulatory compliance of current
operations. The extent of these projects creates operational
risks that the Group strives to minimise by developing and
implementing models related to project management and
monitoring (incl. regular reporting) and ensuring sufficient
resources. The risks related to development projects are
surveyed and monitored regularly.
The Group has an approval process for new products and
services. The process aims to ensure that all material risks
and operational requirements are taken into account when
developing new products and services. The Group has
outsourcing arrangements of which the most important
are IT and infrastructure services and SaaS services. The
realisation of operational risks is monitored with systematic
operational risk event reporting, which is used to change
operating principles or implement other measures to reduce
operational risks where necessary. Operational risk events
are reported to the Executive Management Team and the
Board of Directors of the Parent Company. Only small losses
from operational risks have been realised during 2022.
10. ESG risks
ESG risks include environmental, social and governance
risks. There have been no material changes in ESG
risks during the year. According to the Group’s estimate,
it is currently not exposed to any substantial social or
governance risks. Also, the Group’s current estimate is that
environmental and climate risks are unlikely to manifest
substantially in the short-term. In the medium and long-term,
climate risks may nevertheless have an adverse economic
effect on the Group’s customers. In 2022, the Group made
substantial investments into building its environmental and
climate risk framework in line with regulatory requirements
and feedback received from the ECB. This work will continue
in 2023 and 2024.
MuniFin Group took part in the ECB’s climate stress test in
the first half of 2022. The results were published in July. The
stress test concluded that the Group’s potential exposure to
transition risks caused by climate change is lower than the
average of all participating banks.
More information related to the Group’s risks is published in a
Pillar III Disclosure Report, which is separate from this Report
of the Board of Directors and the Financial Statements. The
Report is available in English on MuniFin’s website.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 3. Interest income and expense
Notes to the income statement
(EUR 1,000)
Jan–Dec 2022 Jan–Dec 2021
Interest and
similar income
Interest and
similar expense Net
Interest and
similar income
Interest and
similar expense Net
Assets
Amortised cost
Cash and balances with central banks 30,304 -26,828 3,475 - -38,619 -38,619
Loans and advances to credit institutions 8,290 -8,346 -56 46 -7,845 -7,800
Loans and advances to the public and public sector entities 220,905 - 220,905 188,484 - 188,484
Debt securities 5,345 -3,206 2,140 9 -5,335 -5,326
Other assets 8,019 - 8,019 1,121 - 1,121
Fair value through other comprehensive income
Debt securities 9 - 9 - -589 -589
Designated at fair value through profit or loss
Loans and advances to the public and public sector entities 348 - 348 236 - 236
Debt securities 9,436 - 9,436 8,422 - 8,422
Mandatorily at fair value through profit or loss
Loans and advances to the public and public sector entities 827 - 827 933 - 933
Debt securities - - - - - -
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 92,225 -87,665 4,560 76,104 -99,734 -23,630
Derivative contracts in hedge accounting -34,804 - -34,804 -93,724 - -93,724
Leased assets 10,177 - 10,177 6,366 - 6,366
Interest on non-financial other assets 6 - 6 8 - 8
Interest on assets 351,089 -126,045 225,044 188,005 -152,123 35,883
, of which interest income/expense according to the effective interest method 272,863 -38,380 189,660 -52,389
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
(EUR 1,000)
Jan–Dec 2022 Jan–Dec 2021
Interest and
similar income
Interest and
similar expense Net
Interest and
similar income
Interest and
similar expense Net
Liabilities
Amortised cost
Liabilities to credit institutions 11,575 -12,570 -995 20,118 -949 19,169
Liabilities to the public and public sector entities - -44,838 -44,838 - -51,503 -51,503
Debt securities issued 778 -263,148 -262,370 1,711 -219,984 -218,273
Provisions and other liabilities - -4,286 -4,286 - -2,181 -2,181
Designated at fair value through profit or loss
Liabilities to credit institutions - -54 -54 - -30 -30
Liabilities to the public and public sector entities - -34,195 -34,195 - -32,726 -32,726
Debt securities issued - -157,748 -157,748 14 -78,466 -78,452
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 348,298 -139,384 208,915 293,688 -96,628 197,061
Derivative contracts in hedge accounting - 311,682 311,682 - 411,252 411,252
Interest on liabilities 360,651 -344,540 16,111 315,531 -71,216 244,315
, of which interest income/expense according to the effective interest method 12,353 -324,841 21,829 -274,618
Total interest income and expense 711,740 -470,585 241,155 503,536 -223,339 280,197
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Interest income on stage 3 financial assets in the expected
credit loss (ECL) calculations totalled EUR 743 thousand
(EUR 951 thousand) during the financial year. These are
included in the line items Loans and advances to the public
and public sector entities and Leased assets.
Interest expense on provisions and other liabilities includes
EUR 51 thousand (EUR 70 thousand) of interest on lease
liabilities recognised in accordance with IFRS 16 Leases
standard.
Interest expenses on financial assets at amortised cost on
cash and balances with central banks consists of interest
paid on central bank deposits and interest on loans and
advances to credit institutions of interest on cash collateral
receivables. Interest expenses on debt securities consists of
interest paid on short-term lending. Negative interest arises
on debt securities at fair value through other comprehensive
income due to the premium / discount amortisation of debt
securities and commercial papers. Interest expenses on
derivative contracts at fair value through profit or loss consist
of negative interest income on derivative contracts that are
not included in hedge accounting. The derivative contracts
contained in this line item hedge financial assets which are
designated at fair value through profit or loss, derivative
contracts with municipalities and derivative contracts
hedging derivatives with municipalities, in addition to
derivative contracts used for hedging interest rate risk of the
balance sheet, for which no hedged item has been specified.
Derivative contracts in hedge accounting hedge line items
Loans and advances to the public and public sector entities
and Leased assets.
Interest income on financial liabilities at amortised cost
to credit institutions consists of interest received on cash
collateral liabilities as well as on TLTRO III debt and interest
income on debt securities issued consists of interest
received on ECPs. Interest income on derivative contracts
at fair value through profit or loss consists of positive
interest expense on derivatives that are not included in
hedge accounting. Derivative contracts contained in this line
item hedge financial liabilities which are designated at fair
value through profit or loss. Derivative contracts in hedge
accounting are used as hedges for line items Liabilities to
credit institutions, Liabilities to the public and public sector
entities and Debt securities issued.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 4. Fee and commission income and expense
(EUR 1,000) Jan–Dec 2022 Jan–Dec 2021
Fee and commission income
Financial advisory services 1,432 1,149
Digital services 868 747
Other operations 2 229
Tot al 2,302 2,126
Fee and commission expense
Commission fees paid -272 -251
Other -5,245 -4,805
Tot al -5,517 -5,056
Net fee and commission income -3,215 -2,930
Fee and commission income from contracts with customers are
divided by service type. EUR 2,234 thousand (EUR 1,871 thousand)
out of fee and commission income from the contracts with
customers has been received from municipalities, joint municipal
authorities and municipality-controlled entities.
MuniFin Group does not disclose segment information of
IFRS 8 Operating Segments standard in the Consolidated
Financial Statements as the Group operates in a single
segment, which also forms the basis of reporting to the
Group’s chief operating decision-maker. Information
regarding segment reporting can be found in the accounting
policies (Note 1) in Section 5. Segment reporting.
The fee and commission income for advisory services are
mainly charged from the customer after the service has been
performed in accordance with the terms of the agreement.
The fee and commission income for digital services are
charged once a year and recognised over time. Other fee
and commission income is charged and recognised at the
time when the service is provided. The accounting treatment
of the fee and commission income from the contracts with
customers is presented in the accounting policies (Note 1)
in Section 20.2 Fee and commission income and expense.
In commission expense, line item Other includes i.e. paid guarantee
fees, custody fees and funding programme update costs.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 5. Net income from securities and foreign exchange transactions
Jan–Dec 2022 (EUR 1,000) Capital gains Capital losses Change in fair value Tota l
Financial assets
Designated at fair value through profit or loss
Loans and advances to the public and public sector entities - - -9,812 -9,812
Debt securities - - -235,724 -235,724
Mandatorily at fair value through profit or loss
Loans and advances to the public and public sector entities - - -976 -976
Debt securities - - - -
Shares and participations - - - -
Financial liabilities
Designated at fair value through profit or loss
Issued commercial papers - - -112 -112
Liabilities to credit institutions - - 1,521 1,521
Liabilities to the public and public sector entities - - 397,597 397,597
Debt securities issued - - 160,312 160,312
Derivative contracts at fair value through profit or loss 378 -172 -304,568 -304,363
Day 1 gain or loss - - -156 -156
Total net income from securities transactions 378 -172 8,083 8,288
Net income from foreign exchange transactions 125,198 -136,321 10,976 -148
Tot al 125,575 -136,494 19,058 8,140
Net income from securities transactions includes fair value changes of financial assets and liabilities measured at fair value through profit or loss, fair value changes of derivative contracts not
included in hedge accounting (derivative contracts at fair value through profit or loss) as well as capital gains and losses related to these items. Net income from foreign exchange transactions
includes unrealised and realised translation differences for all items denominated in foreign currencies. The definition for Day 1 gain or loss is presented in the accounting policies (Note 1) in
Section 13. Determination of fair value. The reconciliation for Day 1 gain or loss is presented in Note 17 Fair values of financial assets and liabilities.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Jan–Dec 2021 (EUR 1,000) Capital gains Capital losses Change in fair value Tot a l
Financial assets
Designated at fair value through profit or loss
Loans and advances to the public and public sector entities - - -769 -769
Debt securities - - -49,633 -49,633
Mandatorily at fair value through profit or loss
Loans and advances to the public and public sector entities - - -2,532 -2,532
Debt securities - - - -
Shares and participations - -23 - -23
Financial liabilities
Designated at fair value through profit or loss
Issued commercial papers - - 1,245 1,245
Liabilities to credit institutions - - -231 -231
Liabilities to the public and public sector entities - - 92,032 92,032
Debt securities issued - - 186,385 186,385
Derivative contracts at fair value through profit or loss 1,419 -508 -204,471 -203,560
Day 1 gain or loss - - -208 -208
Total net income from securities transactions 1,419 -531 21,819 22,707
Net income from foreign exchange transactions 22,648 -22,596 1,336 1,388
Tot al 24,067 -23,127 23,155 24,095
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 6. Financial assets and liabilities designated at fair value through profit or loss
FINANCIAL ASSETS AND LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS
(EUR 1,000)
Nominal value
31 Dec 2022
Carrying amount
31 Dec 2022
Nominal value
31 Dec 2021
Carrying amount
31 Dec 2021
Financial assets
Loans and advances to the public and public sector entities 30,000 28,432 30,000 38,941
Debt securities 3,355,906 3,162,034 3,484,223 3,539,074
Total financial assets * 3,385,906 3,190,465 3,514,223 3,578,015
Financial liabilities
Liabilities to credit institutions 5,000 3,291 5,000 4,787
Liabilities to the public and public sector entitities 1,495,567 1,318,658 1,445,202 1,548,394
Debt securities issued 11,505,250 10,842,676 10,680,831 10,008,299
Total financial liabilities 13,005,818 12,164,626 12,131,032 11,561,479
* Financial assets designated at fair value through profit or loss are exposed to credit risk up to the carrying amounts of those securities at 31 Dec 2022 and 31 Dec 2021.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
CHANGE IN FAIR VALUE OF FINANCIAL ASSETS DESIGNATED AT
FAIR VALUE THROUGH PROFIT OR LOSS
(EUR 1,000) 31 Dec 2022 1 Jan 2022
Fair value change recognised
in the income statement
Jan–Dec 2022
, of which due to
credit risk
, of which due to
market risk
Financial assets
Loans and advances to the public and public sector entities -10,581 -769 -9,812 196 -10,008
Debt securities -215,498 20,226 -235,724 -9,088 -226,635
Total financial assets -226,078 19,457 -245,535 -8,892 -236,643
Financial assets that MuniFin Group has designated at fair value through profit or loss include debt securities in the liquidity portfolio and some lending agreements of which the interest rate
risk is hedged with interest rate and cross currency interest rate swaps. The designation is made as it significantly reduces accounting mismatch which would otherwise arise from measuring
the derivative contract at fair value through profit or loss and the debt security at fair value through other comprehensive income and lending agreements at amortised cost based on the IFRS 9
business model. MuniFin Group does not have credit derivatives hedging these financial assets.
CHANGE IN FAIR VALUE OF FINANCIAL LIABILITIES DESIGNATED AT
FAIR VALUE THROUGH PROFIT OR LOSS
(EUR 1,000) 31 Dec 2022 1 Jan 2022
Fair value change
recognised in the
income statement
Jan–Dec 2022
Change in own credit risk
recognised in the other
comprehensive income
Jan–Dec 2022
Total fair value
change in
Jan–Dec 2022
Financial liabilities
Liabilities to credit institutions 1,708 187 1,521 -25 1,496
Liabilities to the public and public sector entitities 245,483 -152,113 397,597 -12,269 385,327
Debt securities issued 733,254 573,054 160,201 12,111 172,311
Total financial liabilities 980,445 421,127 559,318 -184 559,134
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
NET CHANGE IN FAIR VALUE IN NET INCOME FROM SECURITIES TRANSACTIONS
(EUR 1,000)
Cumulative change in
fair value
31 Dec 2022
Fair value change recognised
in the income statement
Jan–Dec 2022
Financial liabilities designated at fair value through profit or loss 980,445 559,318
Derivative contracts at fair value through profit or loss hedging financial liabilities -989,771 -554,212
Net change in fair value -9,325 5,106
MuniFin Group has designated short-term debt instruments
denominated in foreign currencies, which have been hedged
with FX swaps, at fair value through profit or loss. The
designation reduces accounting mismatch which would
otherwise arise between the measurement of the derivative
contract and financial liability. Financial liabilities designated
at fair value through profit or loss consist of financial liabilities,
which have been hedged according to the Group’s risk
management policy, but which are not subject to IFRS 9
fair value hedge accounting. The fair value changes of the
financial liabilities impact the income statement, but as they
have been hedged, the expected profit or loss is restricted to
interest. The table above describes the net impact of these
financial liabilities and their hedges on the income statement.
When a financial liability is designated at fair value through
profit or loss, the fair value change, with exception to
MuniFin’s own credit risk that is presented in other
comprehensive income as change of the own credit
revaluation reserve, is presented in Net income from
securities transactions.
MuniFin Group applies the income approach of IFRS 13
standard to the separation of fair value changes related to
changes in own credit risk from the fair value changes of
the financial liability. For the majority of financial liabilities
designated at fair value through profit or loss, no market
price is available as there is no active secondary market.
The methodology for separation of own credit risk utilises
MuniFin’s benchmark curves, cross currency basis spreads
and credit spreads of MuniFin’s issued debt securities on
the primary market as input. Based on the aforementioned
inputs, valuation curves can be constructed for various
reporting periods for valuing financial liabilities designated
at fair value through profit or loss. By comparing fair values
calculated using the trade date and reporting date, the impact
of change in own credit risk on the fair value of the financial
liability can be determined.
Financial liabilities designated at fair value through profit or
loss are not traded.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
CHANGE IN FAIR VALUE OF FINANCIAL ASSETS DESIGNATED AT
FAIR VALUE THROUGH PROFIT OR LOSS
(EUR 1,000) 31 Dec 2021 1 Jan 2021
Fair value change recognised
in the income statement
Jan–Dec 2021
, of which due to
credit risk
, of which due to
market risk
Financial assets
Loans and advances to the public and public sector entities -769 - -769 13 -782
Debt securities 20,226 69,859 -49,633 4,434 -54,067
Total financial assets 19,457 69,859 -50,402 4,446 -54,849
CHANGE IN FAIR VALUE OF FINANCIAL LIABILITIES DESIGNATED AT
FAIR VALUE THROUGH PROFIT OR LOSS
(EUR 1,000) 31 Dec 2021 1 Jan 2021
Fair value change
recognised in the
income statement
Jan–Dec 2021
Change in own credit risk
recognised in the other
comprehensive income
Jan–Dec 2021
Total fair value
change in
Jan–Dec 2021
Financial liabilities
Liabilities to credit institutions 187 418 -231 26 -205
Liabilities to the public and public sector entitities -152,113 -244,146 92,032 1,729 93,761
Debt securities issued 573,054 385,424 187,630 -1,356 186,274
Total financial liabilities 421,127 141,696 279,431 400 279,831
NET CHANGE IN FAIR VALUE IN NET INCOME FROM SECURITIES TRANSACTIONS
(EUR 1,000)
Cumulative change in
fair value
31 Dec 2021
Fair value change recognised
in the income statement
Jan–Dec 2021
Financial liabilities designated at fair value through profit or loss 421,127 279,431
Derivative contracts at fair value through profit or loss hedging financial liabilities -435,559 -267,712
Net change in fair value -14,432 11,719
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 7. Net income on financial assets
at fair value through other
comprehensive income
(EUR 1,000) Jan–Dec 2022 Jan–Dec 2021
Capital gains from financial assets - -
Capital losses from financial assets -149 -
Unrealised gains transferred from fair value reserve - -
Unrealised losses transferred from fair value reserve - -
Tot al -149 -
Note 8. Net income from hedge accounting
(EUR 1,000) Jan–Dec 2022 Jan–Dec 2021
Unrealised gains from hedging instruments 1,682,551 365,546
Unrealised losses from hedging instruments -3,131,503 -840,150
Net income from hedging instruments -1,448,952 -474,604
Unrealised gains from hedged items 3,141,349 838,751
Unrealised losses from hedged items -1,655,954 -358,022
Net income from hedged items 1,485,395 480,729
IBOR reform related compensations * - -1,302
Net income from hedge accounting 36,444 4,823
* Compensations relate to the IBOR reform of which more information is presented in
the accounting policies (Note 1) in Section 23. IBOR reform.
Unrealised gains and losses from hedged items include fair value of the risks to which
fair value hedge accounting is applied and which are measured at fair value. The foreign
exchange difference of both hedging instruments and hedged items are presented on
line item Net income from foreign exchange transactions in Note 5. A specification of the
net income from hedge accounting is presented in Note 25 Hedge accounting.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 9. Impact of the reclassified financial assets and liabilities
RECLASSIFICATION OF FINANCIAL ASSETS
(EUR 1,000)
Original measurement
category under IAS 39
New measurement
category under IFRS 9
Fair value
31 Dec 2022
Fair value gain or loss
for the financial year *
EIR determined as at
1 Jan 2018 **
Interest revenue
recognised
Jan–Dec 2022
Loans and advances to the public and public sector
entities Fair value option Amortised cost 91,834 -983 0.14% 478
* The fair value gain or loss that would have been recognised in the income statement during the financial year if the financial assets had not been reclassified.
** Effective interest rate determined on the date of initial application.
RECLASSIFICATION OF FINANCIAL ASSETS
(EUR 1,000)
Original measurement
category under IAS 39
New measurement
category under IFRS 9
Fair value
31 Dec 2021
Fair value gain or loss
for the financial year
EIR determined as at
1 Jan 2018
Interest revenue
recognised
Jan–Dec 2021
Loans and advances to the public and public sector
entities Fair value option Amortised cost 99,253 -1,589 0.1 4% 422
The following table shows the impact of reclassification of financial assets in the implementation of
IFRS 9 standard (as of 1 Jan 2018) from at fair value through profit or loss under IAS 39 standard into
amortised cost under IFRS 9 standard. MuniFin Group did not reclassify any financial liabilities from
fair value through profit or loss into amortised cost in the implementation of IFRS 9 standard.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 10. Other operating income
(EUR 1,000) Jan–Dec 2022 Jan–Dec 2021
Other income from credit institution operations * 90 95
Tot al 90 95
* Line item includes capital gains from sold tangible assets.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 11. Administrative expenses
(EUR 1,000) Jan–Dec 2022 Jan–Dec 2021
Personnel expenses
Salaries and remuneration -15,520 -14,618
Pension costs -2,717 -2,375
Other social security expenses -525 -650
Total personnel expenses -18,763 -17,643
Other personnel related costs -1,760 -1,303
Marketing and communication expenses -876 -624
IT and information expenses -15,259 -14,211
Other administrative expenses -702 -943
Tot al -37,361 -34,722
2022 2021
PERSONNEL Average End of year Average End of year
Permanent full-time 157 159 154 155
Permanent part-time 4 4 1 1
Fixed term 12 12 7 8
Tot al 172 175 162 164
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 12. Depreciation and impairment on tangible and intangible assets
(EUR 1,000) Jan–Dec 2022 Jan–Dec 2021
Depreciation
Depreciation on tangible assets -2,971 -2,946
Depreciation on intangible assets -2,890 -2,780
Total depreciation -5,861 -5,726
Impairment
Impairment on intangible assets * -4,562 -10,482
Total impairment -4,562 -10,482
Total depreciation and impairment -10,423 -16,208
* Line item includes a non-recurring item of EUR 4,562 thousand (EUR 10,482 thousand), which consists of impairment on a significant terminated IT system implementation.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 13. Other operating expenses
(EUR 1,000) Jan–Dec 2022 Jan–Dec 2021
Regulatory expenses
Contributions to the Single Resolution Fund -9,185 -6,737
Other administrative and supervisory fees -2,324 -2,352
Rental expenses -413 -127
External services -5,504 -4,031
Credit rating fees -748 -753
Audit fees -508 -426
Insurances -902 -592
Other expenses from credit institution operations -190 -550
Tot al -19,774 -15,568
Paid fees to the auditor (KPMG Oy Ab) in 2022 totalled EUR 492 thousand (EUR 426 thousand) for audit, EUR 28 thousand (EUR 21 thousand) for tax services and EUR 189 thousand
(EUR 181 thousand) for other services. Assigments as referred to in section 1, subsection 1, paragraph 2 of the Auditing Act in 2022 totalled EUR 16 (EUR 0 thousand).
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 14. Credit losses and impairments on financial assets
MuniFin Group’s credit risks are described in Note 2 Risk management principles and the Group’s risk position in Section 7. Credit Risk. The accounting policies of the expected credit loss
calculations and impairment stages are described in the accounting policies (Note 1) in Section 9. Impairment of financial assets.
CREDIT LOSSES AND IMPAIRMENTS
Jan–Dec 2022 (EUR 1,000)
Expected credit losses Realised credit losses
Additions Subtractions
Recognised in the
income statement Additions Subtractions
Recognised in the
income statement
Expected credit losses on financial assets at amortised cost
Cash and balances with central banks - 0 0 - - -
Loans and advances to credit institutions -88 62 -27 - - -
Loans and advances to the public and public sector entities -1,011 1,386 375 - - -
Leased assets in Loans and advances to the public and public sector entities * -29 2 -26 - - -
Debt securities -1 0 -1 - - -
Cash collateral to CCPs in Other assets -190 - -190 - - -
Credit commitments (off-balance sheet) -15 5 -10 - - -
Total expected credit losses on financial assets at amortised cost -1,335 1,455 120 - - -
Expected credit losses and impairments on other financial assets
Debt securities at fair value through other comprehensive income -29 26 -3 - - -
Guarantee receivables from the public and public sector entities in Other assets - - - - - -
Total expected credit losses and impairments on other financial assets -29 26 -3 - - -
Tot al -1,364 1,481 118 - - -
* Expected credit losses on Leased assets include also the expected credit loss on assets not classified as financial assets according to IFRS 9 standard.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
CREDIT LOSSES AND IMPAIRMENTS
Jan–Dec 2021 (EUR 1,000)
Expected credit losses Realised credit losses
Additions Subtractions
Recognised in the
income statement Additions Subtractions
Recognised in the
income statement
Expected credit losses on financial assets at amortised cost
Cash and balances with central banks 0 0 0 - - -
Loans and advances to credit institutions -53 14 -39 - - -
Loans and advances to the public and public sector entities -713 655 -58 - - -
Leased assets in Loans and advances to the public and public sector entities 0 1 0 - - -
Debt securities 0 0 0 - - -
Cash collateral to CCPs in Other assets -9 0 -9 - - -
Credit commitments (off-balance sheet) -2 3 1 - - -
Total expected credit losses on financial assets at amortised cost -778 674 -105 - - -
Expected credit losses and impairments on other financial assets
Debt securities at fair value through other comprehensive income -18 19 0 - - -
Guarantee receivables from the public and public sector entities in Other assets - - - - - -
Total expected credit losses and impairments on other financial assets -18 19 0 - - -
Tot al -797 692 -104 - - -
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 15. Income tax expense
(EUR 1,000) Jan–Dec 2022 Jan–Dec 2021
Tax based on the profit for the financial year -34,545 -34,386
Tax based on the profit for previous financial years - -
Deferred tax -8,478 -13,687
Tot al -43,023 -48,073
(EUR 1,000) Jan–Dec 2022 Jan–Dec 2021
Profit before tax 215,024 239,678
Taxes at domestic tax rate -43,005 -47,936
Other deductibles 14 10
Non-deductible expenses -32 -145
Taxes for previous financial years - -2
Tot al -43,023 -48,073
Income tax percentage 20.0% 20.0%
Effective tax base 20.0% 20.1%
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 16. Financial assets and liabilities
Notes to the statement of financial position
FINANCIAL ASSETS
31 Dec 2022 (EUR 1,000) Amortised cost
Fair value
through other
comprehensive
income
Designated at
fair value through
profit or loss
Mandatorily at
fair value through
profit or loss
Fair value through
profit or loss Tota l Fair value
Cash and balances with central banks 2 - - - - 2 2
Loans and advances to credit institutions 9,625,488 - - - - 9,625,488 9,625,488
Loans and advances to the public and public sector
entities * 28,055,798 - 28,432 31,090 - 28,115,321 29,739,890
Debt securities 1,457,098 167,636 3,162,034 - - 4,786,768 4,786,383
Shares and participations - - - - - - -
Derivative contracts at fair value through profit or loss - - - - 504,097 504,097 504,097
Derivative contracts in hedge accounting - - - - 2,203,006 2,203,006 2,203,006
Other assets ** 1,219,541 - - - - 1,219,541 1,219,541
Tot al 40,357,928 167,636 3,190,465 31,090 2,707,103 46,454,223 48,078,407
* Line item includes EUR 274,053 thousand of leased assets for which the Group applies fair value hedge accounting. Unhedged leased assets are not presented in this table of financial assets
and liabilities as leased assets are not regarded as financial assets under IFRS 9 standard (classification).
** Line item includes cash collateral given to central counterparties.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
FINANCIAL LIABILITIES
31 Dec 2022 (EUR 1,000) Amortised cost
Designated at
fair value through
profit or loss
Fair value through
profit or loss To ta l Fair value
Liabilities to credit institutions 2,329,332 3,291 - 2,332,623 2,332,609
Liabilities to the public and public sector entities 1,210,927 1,318,658 - 2,529,585 2,543,548
Debt securities issued 24,749,389 10,842,676 - 35,592,065 35,650,001
Derivative contracts at fair value through profit or loss - - 1,562,525 1,562,525 1,562,525
Derivative contracts in hedge accounting - - 3,053,586 3,053,586 3,053,586
Provisions and other liabilities * 574,192 - - 574,192 574,192
Tot al 28,863,840 12,164,626 4,616,111 45,644,576 45,716,461
* Line item includes EUR 570,922 thousand of cash collateral received from central counterparties and EUR 3,269 thousand of lease liabilities in accordance with IFRS 16 standard.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
FINANCIAL ASSETS
31 Dec 2021 (EUR 1,000) Amortised cost
Fair value
through other
comprehensive
income
Designated at
fair value through
profit or loss
Mandatorily at
fair value through
profit or loss
Fair value through
profit or loss Tota l Fair value
Cash and balances with central banks 8,399,045 - - - - 8,399,045 8,399,045
Loans and advances to credit institutions 1,417,310 - - - - 1,417,310 1,417,310
Loans and advances to the public and public sector
entities * 28,048,688 - 38,941 35,204 - 28,122,834 30,301,783
Debt securities 1,088,888 213,466 3,539,074 - - 4,841,428 4,841,792
Shares and participations - - - - - - -
Derivative contracts at fair value through profit or loss - - - - 761,023 761,023 761,023
Derivative contracts in hedge accounting - - - - 1,238,653 1,238,653 1,238,653
Other assets ** 238,930 - - - - 238,930 238,930
Tot al 39,192,861 213,466 3,578,015 35,204 1,999,676 45,019,222 47,198,536
* Line item includes EUR 242,936 thousand of leased assets for which the Group applies fair value hedge accounting. Unhedged leased assets are not presented in this table of financial assets
and liabilities as leased assets are not regarded as financial assets under IFRS 9 standard (classification).
** Line item includes cash collateral given to central counterparties.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
FINANCIAL LIABILITIES
31 Dec 2021 (EUR 1,000) Amortised cost
Designated at
fair value through
profit or loss
Fair value through
profit or loss To ta l Fair value
Liabilities to credit institutions 2,796,230 4,787 - 2,801,016 2,800,913
Liabilities to the public and public sector entities 1,776,291 1,548,394 - 3,324,685 3,344,334
Debt securities issued 25,319,226 10,008,299 - 35,327,525 35,434,600
Derivative contracts at fair value through profit or loss - - 1,114,003 1,114,003 1,114,003
Derivative contracts in hedge accounting - - 1,110,291 1,110,291 1,110,291
Provisions and other liabilities * 337,823 - - 337,823 337,823
Tot al 30,229,570 11,561,479 2,224,294 44,015,343 44,141,965
* Line item includes EUR 333,295 thousand of cash collateral received from central counterparties and EUR 4,528 thousand of lease liabilities in accordance with IFRS 16 standard.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 17. Fair values of financial assets and liabilities
Fair value is the price that would be received to sell the
asset or paid to transfer the liability in an orderly transaction
between market participants at the measurement date. The
Group measures fair values using the following fair value
hierarchy, which reflects the significance of the inputs used in
making the fair value measurements:
Level 1
Inputs that are quoted market prices (unadjusted) for
identical instruments in active markets that the Group can
access at the measurement date. The market is considered
to be active if trading is frequent and price data is regularly
available. These quotes (mid) represent the price for an
orderly transaction between parties in the market on
the valuation date. Level 1 instruments comprise mainly
investments in debt securities.
Level 2
Inputs other than quoted prices included within level 1 that
are observable either directly (i.e. as prices) or indirectly (i.e.
derived from prices). This level includes instruments valued
using quoted prices for identical instruments in markets that
are considered less than active or other valuation techniques
in which all significant inputs are directly or indirectly
observable from market data. Level 2 instruments comprise
mainly OTC derivatives, the Group’s issued plain-vanilla
financial liabilities and the Group’s lending agreements.
Level 3
This level includes all instruments for which the valuation
technique includes inputs that are not observable and
the unobservable inputs have a significant effect on the
instrument’s valuation. Unobservable inputs are used only to
the extent that no relevant observable inputs are available.
If the valuation input is illiquid, extrapolated or based on
historical prices, the valuation input will be defined as a level
3 valuation input as these types of inputs are per definition
unobservable. This level includes financial instruments with
equity and FX structures due to the impact of the utilisation of
inputs such as dividend yield on the fair value measurement.
In addition, level 3 contains some interest rate structures with
long maturities (exceeding e.g. 35 years) or in currencies
where the interest rate curve is not considered liquid for all
maturities.
Due to the nature of MuniFin Group’s funding portfolio (i.e.
issued bonds are hedged back-to-back), if a swap that is
hedging an issued bond is designated as a level 3 instrument,
then the issued bond will also be designated as a level 3
instrument. Same principle applies to other portfolios and
levels of the hierarchy as well. The Group does not hold other
assets or liabilities which are measured at fair value or assets
or liabilities which are non-recurringly measured at fair value.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The following table presents financial instruments by the level of the fair value hierarchy into which the fair value measurement is categorised.
FINANCIAL ASSETS
31 Dec 2022 (EUR 1,000)
Fair value
Carrying amount Level 1 Level 2 Level 3 Tot al
At fair value
Fair value through other comprehensive income
Debt securities 167,636 137,695 29,941 - 167,636
Designated at fair value through profit or loss
Loans and advances to the public and public sector entities 28,432 - 28,432 - 28,432
Debt securities 3,162,034 3,057,135 104,899 - 3,162,034
Mandatorily at fair value through profit or loss
Loans and advances to the public and public sector entities 31,090 - - 31,090 31,090
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 504,097 - 489,218 14,880 504,097
Derivative contracts in hedge accounting 2,203,006 - 2,202,335 671 2,203,006
Total at fair value 6,096,296 3,194,830 2,854,824 46,641 6,096,296
In fair value hedge accounting
Amortised cost
Loans and advances to the public and public sector entities 11,622,665 - 12,214,359 - 12,214,359
Total in fair value hedge accounting 11,622,665 - 12,214,359 - 12,214,359
At amortised cost
Cash and balances with central banks 2 2 - - 2
Loans and advances to credit institutions 9,625,488 8,224,415 1,401,072 - 9,625,488
Loans and advances to the public and public sector entities 16,433,133 - 17,466,009 - 17,466,009
Debt securities 1,457,098 - 1,456,713 - 1,456,713
Other assets 1,219,541 - 1,219,541 - 1,219,541
Total at amortised cost 28,735,262 8,224,417 21,543,335 - 29,767,753
Total financial assets 46,454,223 11,419,247 36,612,519 46,641 48,078,407
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
FINANCIAL LIABILITIES
31 Dec 2022 (EUR 1,000)
Fair value
Carrying amount Level 1 Level 2 Level 3 Tot al
At fair value
Designated at fair value through profit or loss
Liabilities to credit institutions 3,291 - 3,291 - 3,291
Liabilities to the public and public sector entities 1,318,658 - 1,166,432 152,227 1,318,658
Debt securities issued 10,842,676 - 9,865,856 976,820 10,842,676
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 1,562,525 - 1,222,013 340,512 1,562,525
Derivative contracts in hedge accounting 3,053,586 - 3,047,585 6,001 3,053,586
Total at fair value 16,780,736 - 15,305,177 1,475,559 16,780,736
In fair value hedge accounting
Amortised cost
Liabilities to credit institutions 84,892 - 84,878 - 84,878
Liabilities to the public and public sector entities 1,210,927 - 1,224,889 - 1,224,889
Debt securities issued * 24,419,692 - 24,420,879 56,749 24,477,627
Total in fair value hedge accounting 25,715,510 - 25,730,646 56,749 25,787,395
At amortised cost
Liabilities to credit institutions 2,244,440 - 2,244,440 - 2,244,440
Debt securities issued 329,698 - 329,698 - 329,698
Provisions and other liabilities 574,192 - 574,192 - 574,192
Total at amortised cost 3,148,329 - 3,148,329 - 3,148,329
Total financial liabilities 45,644,576 - 44,184,153 1,532,308 45,716,461
* MuniFin Group’s fixed-rate benchmark bond issuances are presented on level 2 due the fact that these bonds are in fair value hedge accounting with respect to the hedged risk. Valuation of the
hedged risk is based on the level 2 inputs. In the Notes of the Financial Statements, the Group’s fixed-rate benchmark bonds’ fair values are adjusted to reflect fair value based on the quoted prices
from Bloomberg. The market price is a level 1 input.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
FINANCIAL ASSETS
31 Dec 2021 (EUR 1,000)
Fair value
Carrying amount Level 1 Level 2 Level 3 Tot al
At fair value
Fair value through other comprehensive income
Debt securities 213,466 172,717 40,748 - 213,466
Designated at fair value through profit or loss
Loans and advances to the public and public sector entities 38,941 - 38,941 - 38,941
Debt securities 3,539,074 3,451,809 87,265 - 3,539,074
Mandatorily at fair value through profit or loss
Loans and advances to the public and public sector entities 35,204 - 344 34,861 35,204
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 761,023 - 698,194 62,829 761,023
Derivative contracts in hedge accounting 1,238,653 - 1,238,246 407 1,238,653
Total at fair value 5,826,360 3,624,526 2,103,737 98,097 5,826,360
In fair value hedge accounting
Amortised cost
Loans and advances to the public and public sector entities 12,968,390 - 13,749,511 - 13,749,511
Total in fair value hedge accounting 12,968,390 - 13,749,511 - 13,749,511
At amortised cost
Cash and balances with central banks 8,399,045 8,399,045 - - 8,399,045
Loans and advances to credit institutions 1,417,310 106,734 1,310,576 - 1,417,310
Loans and advances to the public and public sector entities 15,080,299 - 16,478,128 - 16,478,128
Debt securities 1,088,888 - 1,089,253 - 1,089,253
Other assets 238,930 - 238,930 - 238,930
Total at amortised cost 26,224,472 8,505,779 19,116,886 - 27,622,665
Total financial assets 45,019,222 12,130,305 34,970,134 98,097 47,198,536
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
FINANCIAL LIABILITIES
31 Dec 2021 (EUR 1,000)
Fair value
Carrying amount Level 1 Level 2 Level 3 Tot al
At fair value
Designated at fair value through profit or loss
Liabilities to credit institutions 4,787 - 4,787 - 4,787
Liabilities to the public and public sector entities 1,548,394 - 1,284,601 263,793 1,548,394
Debt securities issued 10,008,299 - 8,248,729 1,759,569 10,008,299
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 1,114,003 - 369,705 744,299 1,114,003
Derivative contracts in hedge accounting 1,110,291 - 1,084,602 25,690 1,110,291
Total at fair value 13,785,774 - 10,992,423 2,793,350 13,785,774
In fair value hedge accounting
Amortised cost
Liabilities to credit institutions 55,120 - 55,016 - 55,016
Liabilities to the public and public sector entities 1,776,291 - 1,795,941 - 1,795,941
Debt securities issued 24,852,845 - 24,873,880 86,040 24,959,920
Total in fair value hedge accounting 26,684,256 - 26,724,837 86,040 26,810,877
At amortised cost
Liabilities to credit institutions 2,741,110 - 2,741,110 - 2,741,110
Debt securities issued 466,381 - 466,381 - 466,381
Provisions and other liabilities 337,823 - 337,823 - 337,823
Total at amortised cost 3,545,314 - 3,545,314 - 3,545,314
Total financial liabilities 44,015,343 - 41,262,574 2,879,390 44,141,965
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
All valuation models, both complex and simple models,
use market prices and other inputs. These market prices
and inputs comprise interest rates, FX rates, volatilities,
correlations etc. The Group applies different types of
valuation inputs depending on the type and complexity
of the instruments and the related risk factors and payoff
structures. The Group’s defined categorisation to the fair
value hierarchy levels is based on the analysis performed
with regards to the valuation input, stress testing (reasonable
possible alternative assumption) and model complexity.
If the inputs used to measure fair value are categorised
into different levels on the fair value hierarchy, the fair
value measurement is categorised in its entirety on the
level of the lowest level input that is significant to the entire
measurement.
IFRS 13 standard classifies valuation models and techniques
into three different categories: market approach, income
approach and cost approach. The Group applies the market-
based approach when the instrument has a functioning market
and public price quotations are available. The Group uses the
market approach for the valuation of investment bonds of the
liquidity portfolio. For all level 1 assets, the Group uses market
prices available for identical assets (same ISIN). The Group
does not make use of prices for comparable assets.
Income approach is applied when valuation is based, for
example, on determining the present value of future cash
flows (discounting). Valuation methods take into account
an assessment of the credit risk, discount rates used,
the possibility of early repayment and other factors that
influence the fair value of a financial instrument reliably. The
Group uses the income approach for many of its financial
instruments, for example derivatives, lending and funding.
The Group does not use the cost approach for the valuation
of any of its financial instruments.
The Group uses widely recognised valuation models to
determine the fair value of common and simple financial
instruments, such as interest rate and currency swaps,
that use only observable market data and require little
management judgement and estimation. Observable
prices or model inputs are usually available in the market
for listed debt and equity securities and simple OTC
derivatives such as interest rate swaps. The availability
of observable market prices and model inputs reduces
the need for management judgement and estimation and
reduces the uncertainty associated with determining fair
values. The availability of observable market prices and
inputs varies depending on the products and markets
and is prone to changes based on specific events
and general conditions in the financial markets.
MuniFin Group applies different models in order to derive the
fair value of a certain type of instrument. The choice of base
model and model calibration depends on the complexity of
the financial instrument and the observability of the relevant
inputs. In line with market practice, the primary choice of base
model is contingent on the underlying instrument classes.
Additionally, instruments are broken down into different
categories granular enough to capture the most important
risk drivers and different kinds of calibration techniques.
The specific combination of base models and the different
assumptions and calibration techniques are documented.
The Group’s fair value instruments that are subject to mark-
to-model valuation techniques consist of four asset classes:
• Interest rate instruments,
• FX instruments,
• Equity-linked instruments and
• Hybrid instruments.
Financial instruments under FX, Equity-linked and Hybrid
classes are mainly classified as level 3 instruments.
The fair value of financial instruments is generally calculated
as the net present value of the individual instruments.
This calculation is supplemented by counterparty level
adjustments. The Group incorporates credit valuation
adjustments (CVA) and debit valuation adjustments (DVA)
into derivative valuations. CVA reflects the impact of the
counterparty’s credit risk on fair value and DVA MuniFin
Group’s own credit quality. The Group uses the same
methodology to compute CVA and DVA. They are both
assessed as the result of three inputs: Loss Given Default
(LGD), Probability of Default (PD, own for DVA and of the
counterparty for CVA) and Expected Exposure (EE).
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Valuation framework
MuniFin Group has implemented a framework for the
arrangements, activities and procedures with regards to
the Group’s model risk management. The purpose of the
model risk management framework is to ensure the effective
management of model risk and mitigation of fair value
uncertainty, as well as to ensure compliance with external and
internal requirements. The Group ensures that all aspects
of the lifecycle of valuation models (i.e. approval, design and
development, testing and maintenance, monitoring and
execution) are subject to effective governance, clear roles
and responsibilities and effective internal control.
The Group manages and maintains a model inventory which
provides a holistic view of all valuation models, their business
purpose and characteristics as well as their applications and
conditions for use. All approved valuation models within the
model inventory are subject to annual review and re-approval
by the Executive Management Team (EMT).
The Finance Management Team acts as a valuation control
group for MuniFin Group’s fair values and is responsible
for the final approval of the Group’s fair values for financial
reporting. The Finance Management Team monitors
and controls MuniFin Group’s valuation process and the
performance of valuation models, decides on the necessary
measures and reports to the EMT. The Finance Management
Team assesses whether the valuation models and valuation
process provide sufficiently accurate information to be used
in financial reporting and, based on the information received,
decides on possible adjustments to the values generated by
the valuation process.
The Group has implemented an efficient control and
performance monitoring framework with regards to its
valuation models, which aims to ensure the accuracy and
appropriateness of model output. Model performance
monitoring consists of four main controls:
• Counterparty valuation control (CVC),
• Fair value explanation,
• Independent price verification (IPV) and
• Independent model validation.
Counterparty valuation control is performed daily by Risk
Management with the purpose to assess any deviations
in valuation model output compared to MuniFin Group’s
own earlier valuations and to counterparty valuations.
The results of the assessment are reported monthly to
the CFO and quarterly to the Finance Management Team.
Fair value explanation process consists of a daily analysis
and explanation of the changes in fair values by Risk
Management and a monthly fair value explanation report
to the CFO and quarterly to the Finance Management
Team. The independent price verification is performed
monthly as a part of MuniFin Group’s IPV process by a
third party service provider. The results of the control
activities are reported monthly to the CFO and quarterly
to the Finance Management Team. The independent
model validation is performed annually for a subset
of MuniFin Group’s valuation models by a third-party
service provider. The results of the model validation
are reported to the Finance Management Team.
Transfers in the fair value hierarchy
MuniFin Group assesses the appropriateness and
correctness of the categorisation with regards to the fair
value hierarchy classification at initial recognition and at
the end of each reporting period. This is to determine the
initial classification of a level 1, 2 and 3 instrument and the
subsequent potential transfers between levels within the fair
value hierarchy. A transfer between the fair value hierarchies
can occur for example when a previously assumed observed
input requires an adjustment using an unobservable input.
The procedure is the same for transfers into and out of the
fair value levels. Transfers between the levels are considered
to take place at the end of the quarter during which an event
causes such a transfer or when circumstances change.
During 2022, transfers totalling EUR 9,270 thousand have
been made between level 1 and level 2. During 2022, there
were no transfers from level 2 to level 3.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
LEVEL 3 TRANSFERS
2022 (EUR 1,000) 1 Jan 2022
Change in fair value in
the income statement
Purchases and
new contracts
Sales and matured
contracts
Transfers
into level 3
Transfers
out of level 3 31 Dec 2022
Financial assets
At fair value
Mandatorily at fair value through profit or loss
Loans and advances to the public and public sector entities 34,861 -3,649 - -121 - - 31,090
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 62,829 -42,509 687 -5,415 - -713 14,880
Derivative contracts in hedge accounting 407 515 66 - - -317 671
Financial assets in total 98,097 -45,643 753 -5,536 - -1,030 46,641
Financial liabilities
At fair value
Designated at fair value through profit or loss
Liabilities to the public and public sector entities 263,793 -46,923 - - - -64,643 152,227
Debt securities issued 1,759,569 -122,696 180,471 -796,670 - -43,855 976,820
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 744,299 150,724 20,607 -569,309 - -5,809 340,512
Derivative contracts in hedge accounting 25,690 -1,179 2,884 -133 - -21,260 6,001
In fair value hedge accounting
Amortised cost
Debt securities issued 86,040 1,491 26,047 -3,066 - -53,764 56,749
Financial liabilities in total 2,879,390 -18,583 230,009 -1,369,177 - -189,331 1,532,308
Level 3 financial assets and liabilities in total * 2,977,487 -64,226 230,762 -1,374,713 - -190,361 1,578,949
* The Group recognises these gains and losses within the line items Net income from securities and foreign exchange transactions and Net income from hedge accounting.
The fair value change due to changes in own credit risk of financial liabilities designated at fair value through profit or loss is recognised in the other comprehensive income.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Sensitivity analysis of unobservable inputs
Sensitivity analysis illustrates the impact of the reasonably possible assumptions on the
fair value of financial instruments for which valuation is dependent on unobservable inputs.
However, it is unlikely in practice that all unobservable inputs would simultaneously move to
extremes of reasonably possible alternatives used in the sensitivity analysis. Hence, the impact
of the sensitivity analysis disclosed in this Note is likely to be greater than the true uncertainty in
the fair values at the financial statement date. Furthermore, the disclosure is neither predictive
nor indicative of future movements in the fair value of financial instruments.
Although the Group believes that its estimates of fair value are appropriate, the use of different
methodologies or assumptions could lead to different measurements of fair value. For fair value
measurements on level 3, changing one or more of the assumptions to the reasonably possible
alternative assumptions would have the following effects: as of 31 December 2022, these
assumptions could have increased fair values by EUR 60.6 million or decreased fair values by
EUR 71.1 million. As of 31 December 2021, these assumptions could have increased fair values
by EUR 60.3 million or decreased fair values by EUR 59.6 million.
SENSITIVITY ANALYSIS OF SIGNIFICANT UNOBSERVABLE INPUTS BY INSTRUMENT TYPE
(EUR 1,000)
Positive range of
fair value 2022
Negative range of
fair value 2022
Positive range of
fair value 2021
Negative range of
fair value 2021
Loans and advances to the public and public sector entities
Loans 249 -273 133 -84
Derivative contracts
Equity-linked derivatives 18,117 -22,052 18,864 -11,446
FX-linked cross currency and interest rate derivatives 834 -1,318 2,644 -1,537
Other interest rate derivatives 11,726 -11,860 13,173 -13,344
Debt securities issued and Liabilities to the public and public sector entities
Equity-linked liabilities 16,927 -23,275 12,350 -18,115
FX-linked liabilities 834 -990 704 -2,233
Other liabilities 11,919 -11,327 12,412 -12,810
Tot al 60,606 -71,095 60,279 -59,570
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The behaviour of the fair value of the unobservable inputs
on level 3 is not necessarily independent, and dynamic
relationships often exist between the unobservable inputs
and the observable inputs. Such relationships, where material
to the fair value of a given instrument, are controlled via
pricing models or valuation techniques. MuniFin Group uses
stochastic models to generate a distribution of future cash
flows for each financial instrument. The future cash flows
are then discounted back to present to get the fair value of
each financial instrument. The stochastic models used by the
Group are Hull-White model and Dupire volatility model.
The unobservable inputs used by the Group are described
next. The unobservable inputs are used only to the extent
that no relevant observable inputs are available.
Correlation parameters
If the fair value of a financial instrument is impacted by
more than one unobservable input, correlations describe
the relationship between these different underlyings. For
example for equity-linked instruments, correlation has a
significant impact on fair value if the underlying is dependent
on more than one equity. For FX-linked cross currency
and interest rate derivatives, correlations exist between
FX rates of currencies, which impact the fair value of the
financial instrument. If a high correlation exists between the
unobservable inputs, it will lead to an increase in fair value.
A low correlation between the unobservable inputs will
lead to a decrease in fair value. MuniFin Group has financial
instruments, in which correlation is a significant unobservable
input, mainly in funding products and their hedging
instruments.
Volatility (extrapolated or illiquid)
A financial instrument whose value is based on a stochastic
model will typically require the volatility of the underlying
instrument as an input. The Group uses Dupire local volatility
model as its stochastic valuation model. For interest rate
volatilities at-the-money implied volatility is used. For FX and
equity components (both equity indices and single stock
prices), a full volatility surface is used that includes quotes
for different strikes and maturities. The Group uses implied
volatility for the majority of the equity-linked structures. In
some cases no liquid volatility surface exists. In these cases,
a proxy volatility is typically used instead. The majority of
the financial instruments, which use volatility as a significant
unobservable input, are the Group’s funding products and
their hedging instruments.
Dividend yield
The main drivers influencing the fair value of equity-linked
instruments are dividend yield and volatility of the underlying
equities. Equity-linked instruments require a dividend
parameter as an input to the fair value. The equity component
is modelled using the Dupire local volatility model where the
underlying equity prices are assumed to follow a random
walk. Instruments that have dividend yield as a significant
unobservable input are the Group’s funding products and
their hedging instruments.
Interest rates (extrapolated or illiquid)
The Group uses unobservable inputs in defining the fair
value of complex interest rate structures. The future cash
flows and their fair value is determined by using forward
rates and volatilities of the underlying interest rates using the
Hull-White stochastic model. Financial instruments whose
payoffs are dependent on the value of complex interest rate
structures are categorised on level 3. The majority of these
instruments requiring extrapolated or illiquid interest rates
as input are the Group’s funding products and their hedging
instruments.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The following table illustrates the effect that changing one or more of the assumptions in the unobservable input (reasonably possible alternative assumptions) could have on the valuations at the
financial statement date.
SENSITIVITY ANALYSIS OF UNOBSERVABLE INPUTS
31 Dec 2022 (EUR 1,000) Fair value Valuation technique Unobservable input
Positive range of
fair value
Negative range of
fair value
Loans and advances to the public and public sector entities
Loans 31,090 Stochastic model Volatility – Extrapolated or Illiquid 249 -273
Derivative contracts
Equity-linked derivatives -104,317 Stochastic model
Correlation parameters -1,743 -1,906
Volatility – Extrapolated or Illiquid 21,290 -1 7,708
Dividend yield -1,430 -2,438
FX-linked cross currency and interest rate derivatives -120,294 Stochastic model
Correlation parameters -11 -121
Volatility – Extrapolated or Illiquid 845 -1,197
Interest rates – Extrapolated or Illiquid 0 0
Other interest rate derivatives -106,351 Stochastic model
Correlation parameters 80 14
Volatility – Extrapolated or Illiquid 11,510 -11,736
Interest rates – Extrapolated or Illiquid 136 -138
Debt securities issued and Liabilities to the public and
public sector entities
Equity-linked liabilities 676,238 Stochastic model
Correlation parameters 569 -194
Volatility – Extrapolated or Illiquid 15,511 -22,611
Dividend yield 847 -470
FX-linked liabilities 170,030 Stochastic model
Correlation parameters -36 -133
Volatility – Extrapolated or Illiquid 870 -857
Interest rates – Extrapolated or Illiquid 0 0
Other liabilities 339,527 Stochastic model
Correlation parameters 0 0
Volatility – Extrapolated or Illiquid 11,876 -11,285
Interest rates – Extrapolated or Illiquid 43 -43
Tot al 60,606 -71,095
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
DAY 1 GAIN OR LOSS (EUR 1,000) Jan–Dec 2022 Jan–Dec 2021
Opening balance in the beginning of the reporting period -236 -29
Recognised gain in the income statement 498 412
Recognised loss in the income statement -470 -711
Deferred gain or loss on new transactions -184 91
Total at the end of the reporting period -392 -236
The definition and amortisation method for the Day 1 gain or loss is presented in the accounting policies (Note 1) in Section 13. Determination of fair value.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Transfers in the fair value hierarchy and sensitivity analysis 2021
During 2021, transfers totalling EUR 50,127 thousand have been made between level 1 and level 2. During 2021, there were no transfers from level 2 to level 3.
LEVEL 3 TRANSFERS
2021 (EUR 1,000) 1 Jan 2021
Change in fair value in
the income statement
Purchases and
new contracts
Sales and matured
contracts
Transfers
into level 3
Transfers
out of level 3 31 Dec 2021
Financial assets
At fair value
Mandatorily at fair value through profit or loss
Loans and advances to the public and public sector entities 43,735 -4,878 - -3,997 - - 34,861
Shares and participations 27 - - -27 - - -
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 79,452 -14,590 604 -2,636 - - 62,829
Derivative contracts in hedge accounting 572 -366 317 - - -117 407
Financial assets in total 123,787 -19,834 921 -6,660 - -117 98,097
Financial liabilities
At fair value
Designated at fair value through profit or loss
Liabilities to the public and public sector entities 224,413 -8,408 47,787 - - - 263,793
Debt securities issued 2,125,714 -144,658 762,861 -975,731 - -8,617 1,759,569
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 646,293 136,055 38,581 -76,252 - -378 744,299
Derivative contracts in hedge accounting 24,391 6,797 450 - - -5,948 25,690
In fair value hedge accounting
Amortised cost
Debt securities issued 94,048 -1,802 27,162 - - -33,368 86,040
Financial liabilities in total 3,114,859 -12,015 876,840 -1,051,984 - -48,310 2,879,390
Level 3 financial assets and liabilities in total 3,238,646 -31,849 877,761 -1,058,644 - -48,427 2,977,487
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
SENSITIVITY ANALYSIS OF UNOBSERVABLE INPUTS
2021 (EUR 1,000) Fair value Valuation technique Unobservable input
Positive range of
fair value
Negative range of
fair value
Loans and advances to the public and public sector entities
Loans 34,861 Stochastic model Volatility – Extrapolated or Illiquid 133 -84
Derivative contracts
Equity-linked derivatives -37,319 Stochastic model
Correlation parameters 759 653
Volatility – Extrapolated or Illiquid 17,551 -11,504
Dividend yield 554 -595
FX-linked cross currency and interest rate derivatives -647,461 Stochastic model
Correlation parameters 498 -353
Volatility – Extrapolated or Illiquid 2,145 -1,183
Interest rates – Extrapolated or Illiquid 1 -1
Other interest rate derivatives -21,972 Stochastic model
Correlation parameters 7 0
Volatility – Extrapolated or Illiquid 12,870 -13,048
Interest rates – Extrapolated or Illiquid 296 -296
Debt securities issued and Liabilities to the public and
public sector entities
Equity-linked liabilities 741,554 Stochastic model
Correlation parameters 229 -149
Volatility – Extrapolated or Illiquid 11,455 -16,829
Dividend yield 666 -1,137
FX-linked liabilities 785,053 Stochastic model
Correlation parameters 17 -123
Volatility – Extrapolated or Illiquid 677 -2,099
Interest rates – Extrapolated or Illiquid 11 -11
Other liabilities 582,795 Stochastic model
Correlation parameters 1 0
Volatility – Extrapolated or Illiquid 12,313 -12,711
Interest rates – Extrapolated or Illiquid 98 -98
Tot al 60,279 -59,570
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 18. Breakdown of financial assets and liabilities at carrying amount by maturity
FINANCIAL ASSETS
31 Dec 2022 (EUR 1,000) 0–3 months 3–12 months 1–5 years 5–10 years Over 10 years Tot a l
Cash and balances with central banks 2 - - - - 2
Loans and advances to credit institutions 9,593,235 - 32,253 - - 9,625,488
Loans and advances to the public and public sector entities 398,680 1,473,568 6,922,458 6,460,287 12,860,328 28,115,321
, of which leased assets * 7,465 20,979 76,516 51,821 117,272 274,053
Debt securities 1,377,556 858,617 2,407,751 142,843 - 4,786,768
Shares and participations - - - - - -
Derivative contracts 181,535 138,338 609,483 1,117,589 660,158 2,707,103
Other assets ** 1,219,541 - - - - 1,219,541
Tot al 12,770,551 2,470,523 9,971,945 7,720,719 13,520,486 46,454,223
* Line item includes leased assets for which the Group applies fair value hedge accounting. Unhedged leased assets are not presented in this table of the financial assets and liabilities by maturity,
as leased assets are not regarded as financial assets under IFRS 9 standard (classification).
** Line item includes cash collateral given to central counterparties.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
FINANCIAL LIABILITIES
31 Dec 2022 (EUR 1,000) 0–3 months 3–12 months 1–5 years 5–10 years Over 10 years Tot a l
Liabilities to credit institutions 2,244,440 - 54,986 15,806 17,391 2,332,623
Liabilities to the public and public sector entities 152,794 77,633 862,967 665,161 771,031 2,529,585
Debt securities issued 7,377,026 3,390,051 18,464,896 4,415,718 1,944,375 35,592,065
Derivative contracts 565,161 263,843 1,753,642 1,160,809 872,656 4,616,111
Provisions and other liabilities * 571,403 1,415 1,374 - - 574,192
, of which lease liabilities 480 1,415 1,374 - - 3,269
Tot al 10,910,824 3,732,942 21,137,865 6,257,493 3,605,452 45,644,576
* Line item includes cash collateral received from central counterparties and lease liabilities in accordance with IFRS 16 standard.
Liabilities and hedging derivative contracts that may be called before maturity have been classified in the maturity class corresponding to the first possible call date.
The Group estimates it will call 10–45% of its callable liabilities in 2023. In 2022, the Group called 19% of its callable liabilities.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
FINANCIAL ASSETS
31 Dec 2021 (EUR 1,000) 0–3 months 3–12 months 1–5 years 5–10 years Over 10 years Tot a l
Cash and balances with central banks 8,399,045 - - - - 8,399,045
Loans and advances to credit institutions 1,383,018 - 34,292 - - 1,417,310
Loans and advances to the public and public sector entities 411,001 1,534,589 6,632,277 6,396,852 13,148,116 28,122,834
, of which leased assets 7,0 25 18,391 72,819 43,699 101,002 242,936
Debt securities 1,194,336 644,292 2,489,779 513,020 - 4,841,428
Shares and participations - - - - - -
Derivative contracts 176,162 85,276 652,855 444,830 640,553 1,999,676
Other assets 238,930 - - - - 238,930
Tot al 11,802,492 2,264,157 9,809,202 7,354,702 13,788,669 45,019,222
FINANCIAL LIABILITIES
31 Dec 2021 (EUR 1,000) 0–3 months 3–12 months 1–5 years 5–10 years Over 10 years Tot a l
Liabilities to credit institutions 1,991,110 750,000 10,613 19,599 29,695 2,801,016
Liabilities to the public and public sector entities 75,992 112,562 1,031,895 856,943 1,247,293 3,324,685
Debt securities issued 4,991,578 5,235,547 18,221,438 4,174,502 2,704,459 35,327,525
Derivative contracts 788,530 584,682 287,038 143,757 420,287 2,224,294
Provisions and other liabilities 333,732 1,308 2,782 - - 337,823
, of which lease liabilities 437 1,308 2,782 - - 4,528
Tot al 8,180,943 6,684,099 19,553,767 5,194,802 4,401,733 44,015,343
Liabilities and hedging derivatives that may be called before maturity have been classified in the maturity class corresponding to the first possible call date. In 2021, the Group called 47% of its
callable liabilities.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 19. Offsetting financial assets and liabilities
The following financial assets and liabilities are subject to enforceable master netting agreements:
Cash given as collateral is included on the statement of financial position on line Loans and advances to credit institutions, excluding cash given as collateral to central counterparties, which
is presented on line Other assets. Cash received as collateral is included on the statement of financial position on line Liabilities to credit institutions, excluding cash received from central
counterparties, which is presented on line Provisions and other liabilities.
Amounts not offset in the statement of financial position
31 Dec 2022 (EUR 1,000)
Carrying amount,
gross
Offset in the statement of
financial position, gross
Carrying amount,
net
Received cash
collateral *
Given cash
collateral ** Net
Financial assets
Derivative contracts 2,707,103 - 2,707,103 815,362 - 1,891,741
Tot al 2,707,103 - 2,707,103 815,362 - 1,891,741
Financial liabilities
Derivative contracts 4,616,111 - 4,616,111 - 2,620,364 1,995,746
Repurchase agreements*** - - - - 514 -514
Tot al 4,616,111 - 4,616,111 - 2,620,878 1,995,232
* Includes EUR 570,922 thousand of cash collateral received from central counterparties.
** Includes EUR 1,219,744 thousand of cash collateral given to central counterparties. In addition,The Group has given debt securities as collateral to central counterparty, in total nominal value of
EUR 25,000 thousand.
*** At the financial statement date 31 Dec 2022, the Group has given cash collateral related to repurchase agreements. More information is presented in the Parent Company’s Financial
Statements Note 39. Repurchase agreements.
The Group has not offset any financial assets or liabilities in its statement of financial position in 2022.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Amounts not offset in the statement of financial position
31 Dec 2021 (EUR 1,000)
Carrying amount,
gross
Offset in the statement of
financial position, gross
Carrying amount,
net
Received cash
collateral *
Given cash
collateral ** Net
Financial assets
Derivative contracts 1,999,676 - 1,999,676 1,074,405 - 925,271
Tot al 1,999,676 - 1,999,676 1,074,405 - 925,271
Financial liabilities
Derivative contracts 2,224,294 - 2,224,294 - 1,549,593 674,702
Tot al 2,224,294 - 2,224,294 - 1,549,593 674,702
* Includes EUR 333,295 thousand of cash collateral received from central counterparties.
** Includes EUR 238,943 thousand of cash collateral given to central counterparties.
The Group has not offset any financial assets or liabilities in its statement of financial position in 2021.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 20. Cash and cash equivalents
31 Dec 2022 (EUR 1,000) Tota l Cash and cash equivalents Expected credit losses
Cash 2 2 -
Central bank deposits payable on demand - - -
Cash and balances with central banks 2 2 0
Loans and advances to credit institutions payable on demand 48,622 48,622 0
Total cash and cash equivalents 48,624 48,624 0
31 Dec 2021 (EUR 1,000) Tot a l Cash and cash equivalents Expected credit losses
Cash 2 2 -
Central bank deposits payable on demand 8,399,043 8,399,043 0
Cash and balances with central banks 8,399,045 8,399,045 0
Loans and advances to credit institutions payable on demand 36,458 36,459 0
Total cash and cash equivalents 8,435,503 8,435,504 0
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 21. Loans and advances to credit institutions
31 Dec 2022 (EUR 1,000) Payable on demand
Other than payable
on demand Expected credit losses To t al
Receivables from central bank 8,143,541 - 0 8,143,541
Domestic credit institutions 30,045 154,000 -47 183,997
Foreign credit institutions 18,578 1,279,434 -61 1,297,950
Tot al 8,192,163 1,433,434 -109 9,625,488
31 Dec 2021 (EUR 1,000) Payable on demand
Other than payable
on demand Expected credit losses To t al
Receivables from central bank 35,984 - 0 35,984
Domestic credit institutions 13,128 34,300 -8 47,420
Foreign credit institutions 23,330 1,310,650 -74 1,333,906
Tot al 72,442 1,344,950 -82 1,417,310
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 22. Loans and advances to the public and public sector entities
31 Dec 2022 31 Dec 2021
(EUR 1,000) Tot a l
, of which expected
credit losses Total
, of which expected
credit losses
Enterprises and housing corporations 14,862,774 -595 14,675,547 -1,002
Public sector entities 12,635,898 -173 12,847,172 -88
Non-profit organisations 342,595 -3 357,179 -57
Leased assets 1,303,094 -28 1,334,146 -2
Tot al 29,144,361 -800 29,214,041 -1,148
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 23. Debt securities
DEBT SECURITIES ISSUED BY PUBLIC SECTOR ENTITIES
31 Dec 2022 (EUR 1,000) Publicly quoted Other To t al
Expected
credit losses *
Amortised cost - 1,246,325 1,246,325 -1
Commercial papers issued by other public sector entities - 1,246,325 1,246,325 -1
Fair value through other comprehensive income 58,487 - 58,487 0
Bonds issued by other public sector entities 58,487 - 58,487 0
Designated at fair value through profit or loss 1,438,177 - 1,438,177 -
Government bonds 120,539 - 120,539 -
Bonds issued by other public sector entities 1,317,638 - 1,317,638 -
Tot al 1,496,664 1,246,325 2,742,990 -1
, of which eligible for central bank refinancing 1,286,322 - 1,286,322 0
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
DEBT SECURITIES ISSUED BY OTHER THAN PUBLIC SECTOR ENTITIES
31 Dec 2022 (EUR 1,000) Publicly quoted Other To t al
Expected
credit losses *
Amortised cost - 210,773 210,773 0
Commercial papers - 210,773 210,773 0
Fair value through other comprehensive income 109,149 - 109,149 -44
Bank bonds 109,149 - 109,149 -44
Designated at fair value through profit or loss 1,723,856 - 1,723,856 -
Bank bonds 1,723,856 - 1,723,856 -
Tot al 1,833,005 210,773 2,043,778 -44
, of which eligible for central bank refinancing 1,603,853 - 1,603,853 -31
31 Dec 2022 (EUR 1,000) Publicly quoted Other To t al
Expected
credit losses *
Debt securities total 3,329,670 1,457,098 4,786,768 -45
* The expected credit losses have been recognised on debt securities, which have been
classified at fair value through other comprehensive income. Therefore, the expected credit
losses are not recognised as a deduction from the gross carrying amount of the debt securities
in the statement of financial position, but through other comprehensive income to fair value
reserve as described in the accounting policies (Note 1) in Section 9.4 Presentation of allowance
for ECL in the statement of financial position.
At the financial statement date 31 Dec 2022, debt securities contain a security, notional value of
EUR 10,000 thousand, that is given as collateral for reverse repo agreements. In addition,
The Group has given debt securities as collateral to central counterparty, in total nominal value
of EUR 25,000 thousand.
At the financial statement date 31 Dec 2022, MuniFin Group has no debt securities measured
mandatorily at fair value through profit or loss.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
DEBT SECURITIES ISSUED BY PUBLIC SECTOR ENTITIES
31 Dec 2021 (EUR 1,000) Publicly quoted Other To ta l
Expected
credit losses
Amortised cost - 930,252 930,252 0
Commercial paper issued by other public sector entities - 930,252 930,252 0
Fair value through other comprehensive income 74,959 - 74,959 -1
Bonds issued by other public sector entities 74,959 - 74,959 -1
Designated at fair value through profit or loss 1,703,953 - 1,703,953 -
Government bonds 180,437 - 180,437 -
Bonds issued by other public sector entities 1,523,516 - 1,523,516 -
Tot al 1,778,912 930,252 2,709,164 -1
, of which eligible for central bank refinancing 1,572,169 - 1,572,169 0
DEBT SECURITIES ISSUED BY OTHER THAN PUBLIC SECTOR ENTITIES
31 Dec 2021 (EUR 1,000) Publicly quoted Other To ta l
Expected
credit losses
Amortised cost - 158,636 158,636 0
Commercial papers - 158,636 158,636 0
Fair value through other comprehensive income 138,506 - 138,506 -41
Bank bonds 138,506 - 138,506 -41
Designated at fair value through profit or loss 1,835,121 - 1,835,121 -
Bank bonds 1,835,121 - 1,835,121 -
Tot al 1,973,627 158,636 2,132,263 -41
, of which eligible for central bank refinancing 1,739,885 - 1,739,885 -30
31 Dec 2021 (EUR 1,000) Publicly quoted Other To ta l
Expected
credit losses
Debt securities total 3,752,539 1,088,888 4,841,428 -41
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 24. Derivative contracts
31 Dec 2022 (EUR 1,000)
Nominal value of underlying instrument Fair value
Remaining maturity
Less than 1 year 1–5 years Over 5 years Tota l Positive Negative
Derivative contracts in hedge accounting
Interest rate derivatives
Interest rate swaps 3,087,053 10,930,604 19,669,762 33,687,419 1,608,625 -2,279,032
, of which cleared by the central counterparty 2,897,220 10,592,658 18,932,859 32,422,737 1,546,169 -2,240,748
Currency derivatives
Cross currency interest rate swaps 3,853,324 8,258,495 455,462 12,567,281 594,381 -774,553
Total derivative contracts in hedge accounting 6,940,378 19,189,099 20,125,224 46,254,701 2,203,006 -3,053,586
Derivative contracts at fair value through profit or loss
Interest rate derivatives
Interest rate swaps 5,726,233 8,177,909 4,368,751 18,272,893 411,500 -1,084,554
, of which cleared by the central counterparty 4,157,199 5,759,356 1,501,085 11,417,640 320,535 -7,895
Interest rate options 40,000 - - 40,000 94 -94
Currency derivatives
Cross currency interest rate swaps 1,200,762 2,704,383 78,336 3,983,481 81,658 -226,389
Forward exchange contracts 4,591,665 - - 4,591,665 10,848 -147,174
Equity derivatives 732,900 - - 732,900 -2 -104,314
Total derivative contracts at fair value through profit or loss 12,291,560 10,882,292 4,447,087 27,620,939 504,097 -1,562,525
Total derivative contracts 19,231,938 30,071,391 24,572,311 73,875,640 2,707,103 -4,616,111
Line item Derivative contracts at fair value through profit or loss contains all derivatives of
the Group which are not included in hedge accounting, even if they are entered into for risk
management purposes. The category contains derivative contracts used for hedging financial
assets and liabilities designated at fair value through profit or loss, all derivative contracts with
municipalities and all derivative contracts hedging derivatives with municipalities. In addition
to these, the category contains derivative contracts used for hedging interest rate risk of the
balance sheet, for which no hedged item has been specified.
Interest received or paid from derivative contracts is included in the statement of financial
position line items Accrued income and prepayments and Accrued expenses and deferred income.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
31 Dec 2021 (EUR 1,000)
Nominal value of underlying instrument Fair value
Remaining maturity
Less than 1 year 1–5 years Over 5 years Tota l Positive Negative
Derivative contracts in hedge accounting
Interest rate derivatives
Interest rate swaps 2,409,728 12,470,328 17,727,331 32,607,387 756,203 -384,289
, of which cleared by the central counterparty 2,233,780 11,834,195 16,946,320 31,014,295 682,416 -308,205
Currency derivatives
Cross currency interest rate swaps 3,437,953 8,396,354 782,448 12,616,756 482,450 -726,003
Total derivative contracts in hedge accounting 5,847,682 20,866,681 18,509,780 45,224,143 1,238,653 -1,110,291
Derivative contracts at fair value through profit or loss
Interest rate derivatives
Interest rate swaps 3,940,682 8,043,879 4,491,216 16,475,777 475,940 -357,092
, of which cleared by the central counterparty 2,864,097 5,372,343 1,578,144 9,814,584 46,821 -163,327
Interest rate options - 40,000 - 40,000 101 -1 01
Currency derivatives
Cross currency interest rate swaps 2,467,039 1,940,380 109,367 4,516,786 133,656 -718,888
Forward exchange contracts 3,354,738 - - 3,354,738 150,723 -
Equity derivatives 816,109 - - 816,109 604 -37,922
Total derivative contracts at fair value through profit or loss 10,578,567 10,024,259 4,600,583 25,203,409 761,023 -1,114,003
Total derivative contracts 16,426,249 30,890,940 23,110,363 70,427,552 1,999,676 -2,224,294
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 25. Hedge accounting
HEDGE ACCOUNTING
31 Dec 2022 (EUR 1,000) Nominal value
Fair value hedge
accounting total
IAS 39 portfolio
hedge accounting
IFRS 9 fair value
hedge accounting
IFRS 9 fair value
hedge accounting
incl. Cost-of-Hedging
Assets
Loans and advances to the public and public sector entities – Loans 12,826,877 11,348,612 11,289,353 59,259 -
Loans and advances to the public and public sector entities – Leased assets 302,864 274,053 - 274,053 -
Total assets 13,129,741 11,622,665 11,289,353 333,313 -
Liabilities
Liabilities to credit institutions 95,000 84,892 - 84,892 -
Liabilities to the public and public sector entities 1,302,710 1,210,927 - 1,210,927 -
Debt securities issued 27,163,444 24,419,692 - 12,603,372 11,816,320
Total liabilities 28,561,154 25,715,510 - 13,899,190 11,816,320
The interest rate and foreign exchange rate risks of the
Group are managed by entering into derivative transactions.
According to the Market Risk Policy, the Group’s hedging
strategy is mainly to hedge all material foreign exchange
and interest rate risks of financial assets and liabilities with
maturities exceeding one year. As a result, foreign currency
denominated items are translated into euros, and fixed
rate and long-term reference rates are swapped to floating
interest rates with shorter terms. The risk management
principles related to the Group’ s hedging of market risk
are described in more detail in Note 2 Risk Management
principles and the Group’s risk position.
The Group applies both fair value hedge accounting
according to IFRS 9 standard and fair value portfolio hedge
accounting according to IAS 39 standard. The Group does
not apply cash flow hedge accounting. Accounting policies
related to hedge accounting are described in the accounting
polices (Note 1) in Section 10. Hedge Accounting.
In the following table, the hedged assets and liabilities are
presented according to statement of financial position
line items divided into IAS 39 portfolio hedge accounting
and IFRS 9 fair value hedge accounting, which is further
subdivided into whether hedging is subject to the separation
of the Cost-of-Hedging.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The figures presented in the adjacent table contain the
cumulative fair value change at the beginning and end of
the financial year, in addition to the fair value change of the
hedged risk and the hedging instrument during the financial
year. The figures presented in the table do not include the
change in fair value due to foreign exchange differences
of hedging instruments and the hedged items, which are
recognised in the income statement under Net income from
securities and foreign exchange transactions. Due to the
above mentioned reason, the total amount of the hedging
instruments does not correspond to the fair value presented
in Note 24 Derivative contracts on line Total derivative
contracts in hedge accounting. The fair value changes of
the hedged risk of the hedged items and all other fair value
changes of the hedging instruments are recognised in the
income statement under Net income from hedge accounting.
The ineffective portion of the hedging relationship is thus
shown on this line in the income statement. Net income from
securities and foreign exchange transactions is specified in
Note 5 and net income from hedge accounting in Note 8.
In accordance with the market practice and IFRS 13 Fair value
measurement standard, the Group discounts hedged items
with the swap curve and the hedging derivatives with the OIS
curve, which causes a significant part of the Group’s hedge
ineffectiveness. In addition, ineffectiveness may also arise to
some extent from differences in notional, day count methods
or timing of the cash flows.
VALUE OF HEDGED RISK
(EUR 1,000) 31 Dec 2022 1 Jan 2022
Recognised in the
income statement
Jan–Dec 2022
Assets
IAS 39 portfolio hedge accounting
Loans and advances to the public and public sector entities -1,476,553 122,505 -1,599,058
Derivative contracts in hedge accounting 1,549,315 -78,911 1,628,226
Accumulated fair value accrual from the termination of hedge accounting -1,721 218 -1,939
IAS 39 portfolio hedge accounting, net 71,041 43,812 27,229
IFRS 9 fair value hedge accounting
Loans and advances to the public and public sector entities -29,402 25,414 -54,816
Derivative contracts in hedge accounting 28,548 -25,669 54,217
IFRS 9 fair value hedge accounting, net -855 -255 -599
Liabilities
IFRS 9 fair value hedge accounting
Liabilities to credit institutions 10,108 -5,120 15,228
Liabilities to the public and public sector entities 54,570 -340,433 395,003
Debt securities issued 2,559,950 -171,028 2,730,978
Derivative contracts in hedge accounting -2,631,089 500,306 -3,131,395
IFRS 9 fair value hedge accounting, net -6,461 -16,275 9,814
IBOR reform related compensations * -3,343 -3,343 0
Total hedge accounting 60,382 23,938 36,444
* Compensations relate to the IBOR reform of which more information is presented in the accounting policies (Note 1) in
Section 23. IBOR reform.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The adjacent table presents the impact of Cost-of-Hedging
of cross currency derivatives on equity in the Cost-of-
Hedging reserve. The figures are presented net of deferred
taxes. For all foreign currency hedge relationships the Group
has elected to utilise Cost-of-Hedging. For each hedge
relationship, when the cross currency swap is designated
as a hedging instrument, the cross currency basis spread is
separated and excluded from the designation and accounted
for as Cost-of-Hedging.
The difference between the changes in fair value of
the actual derivative and the designated portion of the
derivative are recorded in other comprehensive income
as Cost-of-Hedging to the Cost-of-Hedging reserve. Thus,
changes in cross currency basis spreads will impact other
comprehensive income and do not create ineffectiveness in
the hedge relationship.
HEDGING IMPACT ON EQUITY
(EUR 1,000) 31 Dec 2022 1 Jan 2022
Impact on
Cost-of-Hedging reserve
Cost-of-Hedging
Derivative contracts in hedge accounting 1,488 13,621 -12,133
Tot al 1,488 13,621 -12,133
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The following table presents the cumulative effectiveness of hedge accounting by hedged items. In addition, the table shows the hedging instruments used.
EFFECTIVENESS OF HEDGE ACCOUNTING
31 Dec 2022 (EUR 1,000)
Gains/losses attributable to the hedged risk
Hedge
ineffectivenessHedged item Hedging instruments Hedged items Hedging instruments
Assets
IAS 39 portfolio hedge accounting
Fixed rate and revisable rate loans Interest rate derivatives -1,476,553 1,549,315 72,762
IFRS 9 fair value hedge accounting
Structured lending Interest rate derivatives -595 1,043 449
Fixed rate and revisable rate leased assets Interest rate derivatives -28,808 27,504 -1,304
Assets total -1,505,955 1,577,862 71,907
Liabilities
IFRS 9 fair value hedge accounting
Financial liabilities denominated in EUR Interest rate derivatives 1,967,231 -1,972,437 -5,207
Financial liabilities denominated in foreign currencies
Currency derivatives (Cross
currency interest rate swaps)
Interest rate derivatives 657,397 -658,652 -1,255
Liabilities total 2,624,628 -2,631,089 -6,461
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
HEDGE ACCOUNTING
31 Dec 2021 (EUR 1,000) Nominal value
Fair value hedge
accounting total
IAS 39 portfolio
hedge accounting
IFRS 9 fair value
hedge accounting
IFRS 9 fair value
hedge accounting
incl. Cost-of-Hedging
Assets
Loans and advances to the public and public sector entities – Loans 12,577,902 12,725,453 12,598,775 126,678 -
Loans and advances to the public and public sector entities – Leased assets 243,432 242,936 - 242,936 -
Total assets 12,869,504 12,968,390 12,598,775 369,615 -
Liabilities
Liabilities to credit institutions 50,000 55,120 - 55,120 -
Liabilities to the public and public sector entities 1,504,060 1,776,291 - 1,737,750 38,541
Debt securities issued 24,714,983 24,852,845 - 12,207,796 12,645,049
Total liabilities 26,269,043 26,684,256 - 14,000,666 12,683,589
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
VALUE OF HEDGED RISK
(EUR 1,000) 31 Dec 2021 1 Jan 2021
Recognised in the income
statement Jan–Dec 2021
Assets
IAS 39 portfolio hedge accounting
Loans and advances to the public and public sector entities 122,505 464,688 -342,182
Derivative contracts in hedge accounting -78,911 -428,083 349,171
Accumulated fair value accrual from the termination of hedge accounting 218 47 170
IAS 39 portfolio hedge accounting, net 43,812 36,653 7,159
IFRS 9 fair value hedge accounting
Loans and advances to the public and public sector entities 25,414 41,424 -16,010
Derivative contracts in hedge accounting -25,669 -42,044 16,375
IFRS 9 fair value hedge accounting, net -255 -620 365
Liabilities
IFRS 9 fair value hedge accounting
Liabilities to credit institutions -5,120 -13,800 8,681
Liabilities to the public and public sector entities -340,433 -481,546 141,113
Debt securities issued -171,028 -859,986 688,958
Derivative contracts in hedge accounting 500,306 1,340,456 -840,150
IFRS 9 fair value hedge accounting, net -16,275 -14,876 -1,399
IBOR reform related compensations -3,343 -2,041 -1,302
Total hedge accounting 23,938 19,116 4,822
HEDGING IMPACT ON EQUITY
(EUR 1,000) 31 Dec 2021 1 Jan 2021
Impact on
Cost-of-Hedging reserve
Cost-of-Hedging
Derivative contracts in hedge accounting 13,621 15,624 -2,004
Tot al 13,621 15,624 -2,004
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EFFECTIVENESS OF HEDGE ACCOUNTING
31 Dec 2021 (EUR 1,000)
Gains/losses attributable to the hedged risk
Hedge
ineffectivenessHedged item Hedging instruments Hedged items Hedging instruments
Assets
IAS 39 portfolio hedge accounting
Fixed rate and revisable rate loans Interest rate derivatives 122,505 -78,911 43,594
IFRS 9 fair value hedge accounting
Structured lending Interest rate derivatives 25,908 -25,880 28
Fixed rate and revisable rate leased assets Interest rate derivatives -495 211 -283
Assets total 147,919 -104,580 43,339
Liabilities
IFRS 9 fair value hedge accounting
Financial liabilities denominated in EUR Interest rate derivatives -435,365 426,733 -8,633
Financial liabilities denominated in foreign currencies
Currency derivatives (Cross
currency interest rate swaps)
Interest rate derivatives -81,215 73,573 -7,642
Liabilities total -516,581 500,306 -16,275
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 26. Credit risks of financial assets and other commitments
EXPOSURES BY ASSET GROUPS AND IMPAIRMENT STAGES
31 Dec 2022 (EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3 *
Gross carrying
amount
12-month
ECL
Gross carrying
amount
Lifetime
ECL
Gross carrying
amount
Lifetime
ECL
Gross carrying
amount
Expected
credit losses
Cash and balances with central banks at amortised cost 2 - - - - - 2 -
Loans and advances to credit institutions at amortised cost 9,625,488 -109 - - - - 9,625,488 -109
Loans and advances to the public and public sector entities at amortised cost 27,277,326 -89 497,729 -662 6,690 -21 27,781,745 -772
Leased assets in Loans and advances to the public and public sector entities at
amortised cost 1,283,297 -6 19,655 -22 142 0 1,303,094 -28
Debt securities at amortised cost 1,457,098 -1 - - - - 1,457,098 -1
Debt securities at fair value through other comprehensive income 167,636 -44 - - - - 167,636 -44
Cash collateral to CCPs in Other assets at amortised cost 1,219,541 -203 - - - - 1,219,541 -203
Guarantee receivables from the public and public sector entities in Other assets - - - - - - - -
Credit commitments (off-balance sheet) 2,447,573 -11 16,392 -2 - - 2,463,964 -14
Tot al 43,477,961 -464 533,776 -686 6,832 -21 44,018,569 -1,171
* The Group has collateral and guarantee arrangements that fully cover the stage 3 receivables as described in Note 2 Risk management principles and the Group’s risk position in Section 7. Credit
risk. The Group’s management expects that all the stage 3 reveivables will be recovered and no final credit loss will emerge. Stage 3 receivables include EUR 2,144 thousand (EUR 2,345 thousand)
of originated credit impaired receivables (Purchased or Originated Credit Impaired, POCI). Expected credit losses for the POCI receivables amount to EUR 8 thousand (EUR 7 thousand).
MuniFin Group’s credit risks are described in Note 2 Risk management principles and the Group’s risk position in Section 7. Credit Risk. The accounting policies of the expected credit loss
calculations and impairment stages are described in the accounting policies (Note 1) in Section 9. Impairment of financial assets.
The following table presents exposures under expected credit loss calculations by asset groups and impairment stages.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPOSURES BY ASSET GROUPS AND IMPAIRMENT STAGES
31 Dec 2021 (EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
Gross carrying
amount
12-month
ECL
Gross carrying
amount
Lifetime
ECL
Gross carrying
amount
Lifetime
ECL
Gross carrying
amount
Expected
credit losses
Cash and balances with central banks at amortised cost 8,399,045 0 - - - - 8,399,045 0
Loans and advances to credit institutions at amortised cost 1,417,310 -82 - - - - 1,417,310 -82
Loans and advances to the public and public sector entities at amortised cost 27,457,506 -23 220,730 -578 127,517 -546 27,805,752 -1,147
Leased assets in Loans and advances to the public and public sector entities at
amortised cost 1,333,987 -2 - - 159 - 1,334,146 -2
Debt securities at amortised cost 1,079,338 0 9,550 0 - - 1,088,888 0
Debt securities at fair value through other comprehensive income 213,466 -41 - - - - 213,466 -41
Cash collateral to CCPs in Other assets at amortised cost 238,930 -13 - - - - 238,930 -13
Guarantee receivables from the public and public sector entities in Other assets 1,752 - - - - - 1,752 -
Credit commitments (off-balance sheet) 2,585,201 -4 3,167 0 4,506 0 2,592,873 -4
Tot al 42,726,533 -166 233,447 -578 132,182 -546 43,092,161 -1,289
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The following table presents a summary of total changes and reconciliation of expected credit losses by impairment stages during the financial year.
TOTAL EXPECTED CREDIT LOSSES BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2022 -166 -578 -546 -1,289 43,092,161
New assets originated or purchased -361 357 -1 -5 17,324,241
Assets derecognised or repaid (excluding write-offs) 95 7 77 179 -16,397,777
Transfers to Stage 1 -1 496 - 496 496
Transfers to Stage 2 1 -575 18 -556 -556
Transfers to Stage 3 0 - 0 0 0
Additional provision (Management overlay) - - 430 430 430
Changes to contractual cash flows due to modifications not resulting in derecognition - - - - -
Changes to models * and inputs ** used for ECL calculations -32 -394 0 -426 -426
Write-offs - - - - -
Recoveries - - - - -
Total 31 Dec 2022 -464 -686 -21 -1,171 44,018,568
* Represents changes in the model.
** Represents changes to model parameters (e.g. GDP rates, unemployment rates)
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
MuniFin Group finished ECL IT and model development during the second half of the year
2022. With the development, changes have been made to the assessment criteria for
significant increase in credit risk (SICR), and to the models of probability of default (PD) and
loss given default (LGD). In addition, macro scenarios were updated to take into account
forward-looking information at the end of financial year. Expected credit losses increased by
EUR 426 thousand due to the changes in models and parameters.
The Group recorded an additional discretionary provision (management overlay) at the end
of 2021 to take into account IT and model changes that will take place in 2022. The amount
of additional discretionary provision was increased at the end of June 2022. The additional
discretionary provision based on a group-specific assessment and decided by the Group’s
management was EUR 916 thousand. Since the IT and model development were finished in
the second half of the 2022, the additional discretionary provision based on the group-specific
assessment was removed. The addiotional provision was recognised under the balance sheet
item Loans and advances to the public and public sector entities. The additional provision was
not allocated to contract level.
MuniFin Group’s total credit risk has still remained low and the amount of ECL remains low.
Municipalities’ tax development was positive during 2022. The year 2023 is estimated to be
remarkably strong for the local government finances, despite the weakened economic outlook,
as the tax revenue-cutting effect of the health and social services reform will only be seen in full
impact on 2024. During 2022, the ongoing energy crisis, rising interest rates and inflation have
not yet had a significant effect on MuniFin Group’s customers’ ability to pay or creditworthiness.
MuniFin Group’s customer exposures have zero risk weight in the capital adequacy calculation
because they are from Finnish municipalities, joint municipality authorities or wellbeing
services counties or involve a municipal, joint municipality authority or wellbeing services
county guarantee or a state deficiency guarantee supplementing the real estate collateral as
described in the Note 2 Risk management principles and the Group’s risk position under Section
7. Credit risk. The Group’s management estimates that all receivables will be recovered in full
and therefore no final credit loss will arise. On 31 December 2022, MuniFin Group has total
of EUR 4 million (EUR 19 million) in guarantee receivables from the public sector due to the
insolvency of customers. Credit risk of the liquidity portfolio has remained on a good quality
level with the average rating of AA+ (AA+).
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
TOTAL EXPECTED CREDIT LOSSES BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2021 -126 -835 -224 -1,184 39,717,750
New assets originated or purchased -41 56 -13 3 9,637,333
Assets derecognised or repaid (excluding write-offs) 46 101 55 203 -6,262,613
Transfers to Stage 1 0 18 - 18 18
Transfers to Stage 2 0 -203 60 -143 -143
Transfers to Stage 3 - 1 -1 1 1
Additional provision (Management overlay) - 340 -430 -90 -90
Changes to contractual cash flows due to modifications not resulting in derecognition - - - - -
Changes to models and inputs used for ECL calculations -46 -56 6 -96 -94
Write-offs - - - - -
Recoveries - - - - -
Total 31 Dec 2021 -166 -578 -546 -1,289 43,092,161
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
In 2021, MuniFin Group made changes to macro scenarios and loss given default parameters
in expected credit loss calculations, which increased ECL by EUR 96 thousand. There were no
changes in the ECL model.
At the end of 2021, MuniFin Group recorded an additional discretionary provision (management
overlay) of EUR 430 thousand to take into account ECL model changes that will take place in
2022. The assessment of the need for additional provision was based on the fact that MuniFin
Group’s management estimated that due to the model changes, part of the exposures would
transfer to stage 2 in the expected credit loss calculations when ECL is calculated for the
lifetime of the contract instead of a 12-month ECL, or in some cases LGD would increase.
In addition, model changes were expected to have an effect on the amount of ECL in stage
3. Since the IT and model development were finished in the second half of the 2022, the
additional dicreationary provision based on the group-specific assessment was removed in the
financial year 2022. The additional provision related to the balance sheet line item Loans and
advances to the public and public sector entities. The additional provision was not allocated to
contract level.
The following tables present changes and reconciliation of expected credit losses by
impairment stages and asset groups during the financial year.
EXPECTED CREDIT LOSSES ON CASH AND BALANCES WITH CENTRAL BANKS AT
AMORTISED COST BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2022 0 - - 0 8,399,045
New assets originated or purchased - - - - -
Assets derecognised or repaid (excluding write-offs) 0 - - 0 -8,399,043
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations - - - - -
Total 31 Dec 2022 - - - - 2
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON LOANS AND ADVANCES TO CREDIT INSTITUTIONS
AT AMORTISED COST BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2022 -82 - - -82 1,417,310
New assets originated or purchased -85 - - -85 9,112,062
Assets derecognised or repaid (excluding write-offs) 62 - - 62 -903,880
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations -3 - - -3 -3
Total 31 Dec 2022 -109 - - -109 9,625,488
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON LOANS AND ADVANCES TO THE PUBLIC AND
PUBLIC SECTOR ENTITIES AT AMORTISED COST BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2022 -23 -578 -546 -1,147 27,805,752
New assets originated or purchased -42 357 -1 314 3,871,298
Assets derecognised or repaid (excluding write-offs) 2 4 77 84 -3,895,282
Transfers to Stage 1 -1 496 - 496 496
Transfers to Stage 2 0 -573 18 -554 -554
Transfers to Stage 3 0 - 0 0 0
Additional provision (Management overlay) - - 430 430 430
Changes to contractual cash flows due to modifications not resulting in derecognition - - - - -
Changes to models and inputs used for ECL calculations -25 -370 0 -395 -395
Write-offs - - - - -
Total 31 Dec 2022 -89 -662 -21 -772 27,781,745
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON LEASED ASSETS IN LOANS AND ADVANCES
TO THE PUBLIC AND PUBLIC SECTOR ENTITIES AT AMORTISED COST BY
IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2022 -2 - 0 -2 1,334,146
New assets originated or purchased -5 0 0 -5 242,148
Assets derecognised or repaid (excluding write-offs) 2 - - 2 -273,177
Transfers to Stage 1 - - - - -
Transfers to Stage 2 0 0 - 0 0
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations -2 -22 - -23 -23
Total 31 Dec 2022 -6 -22 0 -28 1,303,094
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON DEBT SECURITIES AT AMORTISED COST BY
IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2022 0 0 - 0 1,088,888
New assets originated or purchased -1 - - -1 1,457,098
Assets derecognised or repaid (excluding write-offs) 0 0 - 0 -1,088,888
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations - - - - -
Total 31 Dec 2022 -1 - - -1 1,457,098
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON DEBT SECURITIES AT FAIR VALUE THROUGH
OTHER COMPREHENSIVE INCOME BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2022 -41 - - -41 213,466
New assets originated or purchased -28 - - -28 52,770
Assets derecognised or repaid (excluding write-offs) 26 - - 26 -98,599
Transfers to Stage 1 - - - -
Transfers to Stage 2 - - - -
Transfers to Stage 3 - - - -
Changes to models and inputs used for ECL calculations -1 - - -1
Total 31 Dec 2022 -44 - - -44 167,636
The loss allowance on debt instruments classified at fair value through other comprehensive income is recognised in the fair value reserve. The accumulated loss allowance is recognised to the
profit or loss upon derecognition of the assets. More details regarding the presentation of allowance for expected credit losses is presented in the accounting policies in Note 1 in Section 9.4
Presentation of allowance for ECL in the statement of financial position.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON CASH COLLATERAL TO CCPS IN OTHER ASSETS
AT AMORTISED COST BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2022 -13 - - -13 238,930
New assets originated or purchased -190 - - -190 980,611
Assets derecognised or repaid (excluding write-offs) - - - - -
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations - - - - -
Total 31 Dec 2022 -203 - - -203 1,219,541
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON GUARANTEE RECEIVABLES FROM THE PUBLIC
AND PUBLIC SECTOR ENTITIES IN OTHER ASSETS BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2022 - - - - 1,752
New assets originated or purchased - - - - -
Assets derecognised or repaid (excluding write-offs) - - - - -1,752
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations - - - - -
Recoveries - - - - -
Total 31 Dec 2022 - - - - -
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON CREDIT COMMITMENTS (OFF-BALANCE SHEET)
BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2022 -4 0 0 -4 2,592,873
New assets originated or purchased -9 0 - -9 1,608,254
Assets derecognised or repaid (excluding write-offs) 3 2 0 5 -1,737,157
Transfers to Stage 1 - - - -
Transfers to Stage 2 0 -2 - -2
Transfers to Stage 3 - - - -
Changes to models and inputs used for ECL calculations -1 -2 - -4
Total 31 Dec 2022 -11 -2 - -14 2,463,964
The loss allowance on binding credit commitments is recognised under Other liabilities. More details regarding the presentation of allowance for expected credit losses is presented in the
accounting policies in Note 1 in Section 9.4 Presentation of allowance for ECL in the statement of financial position.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON CASH AND BALANCES WITH CENTRAL BANKS
AT AMORTISED COST BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2021 0 - - 0 5,565,801
New assets originated or purchased 0 - - 0 2,833,244
Assets derecognised or repaid (excluding write-offs) 0 - - 0 0
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations - - - - -
Total 31 Dec 2021 0 - - 0 8,399,045
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON LOANS AND ADVANCES TO CREDIT INSTITUTIONS
AT AMORTISED COST BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2021 -43 - - -43 1,841,853
New assets originated or purchased -1 0 - - -10 353,939
Assets derecognised or repaid (excluding write-offs) 14 - - 14 -778,439
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations -43 - - -43 -43
Total 31 Dec 2021 -82 - - -82 1,417,310
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON LOANS AND ADVANCES TO THE PUBLIC AND
PUBLIC SECTOR ENTITIES AT AMORTISED COST BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2021 -30 -835 -224 -1,089 26,886,947
New assets originated or purchased -11 56 -13 33 3,238,833
Assets derecognised or repaid (excluding write-offs) 10 101 55 167 -2,319,771
Transfers to Stage 1 0 18 - 18 18
Transfers to Stage 2 0 -203 60 -143 -143
Transfers to Stage 3 - 1 -1 1 1
Additional provision (Management overlay) - 340 -430 -90 -90
Changes to contractual cash flows due to modifications not resulting in derecognition - - - - -
Changes to models and inputs used for ECL calculations 7 -56 6 -44 -44
Write-offs - - - - -
Total 31 Dec 2021 -23 -578 -546 -1,147 27,805,752
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON LEASED ASSETS IN LOANS AND ADVANCES
TO THE PUBLIC AND PUBLIC SECTOR ENTITIES AT AMORTISED COST BY
IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2021 -2 0 0 -2 1,090,940
New assets originated or purchased 0 - - 0 310,062
Assets derecognised or repaid (excluding write-offs) 0 - 0 0 -66,857
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations 1 - 0 1 1
Total 31 Dec 2021 -2 0 0 -2 1,334,146
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON DEBT SECURITIES AT AMORTISED COST BY
IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2021 0 0 - 0 1,310,305
New assets originated or purchased 0 0 - 0 1,088,888
Assets derecognised or repaid (excluding write-offs) 0 0 - 0 -1,310,305
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations - - - - -
Total 31 Dec 2021 0 0 - 0 1,088,888
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON DEBT SECURITIES AT FAIR VALUE THROUGH
OTHER COMPREHENSIVE INCOME BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2021 -42 - - -42 423,050
New assets originated or purchased -1 6 - - -16 28,176
Assets derecognised or repaid (excluding write-offs) 19 - - 19 -237,760
Transfers to Stage 1 - - - -
Transfers to Stage 2 - - - -
Transfers to Stage 3 - - - -
Changes to models and inputs used for ECL calculations -2 - - -2
Total 31 Dec 2021 -41 - - -41 213,466
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON CASH COLLATERAL TO CCPS IN OTHER ASSETS
AT AMORTISED COST BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2021 -4 - - -4 243,269
New assets originated or purchased -1 - - -1 22,942
Assets derecognised or repaid (excluding write-offs) 0 - - 0 -27,272
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations -8 - - -8 -8
Total 31 Dec 2021 -13 - - -13 238,930
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON GUARANTEE RECEIVABLES FROM THE PUBLIC
AND PUBLIC SECTOR ENTITIES IN OTHER ASSETS BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2021 - - - - 1,606
New assets originated or purchased - - - - 145
Assets derecognised or repaid (excluding write-offs) - - - - -
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations - - - - -
Recoveries - - - - -
Total 31 Dec 2021 - - - - 1,752
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON CREDIT COMMITMENTS (OFF-BALANCE SHEET)
BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2021 -4 0 0 -4 2,353,978
New assets originated or purchased -2 0 - -2 1,761,104
Assets derecognised or repaid (excluding write-offs) 3 - 0 3 -1,522,209
Transfers to Stage 1 - - - -
Transfers to Stage 2 - - - -
Transfers to Stage 3 - 0 0 0
Changes to models and inputs used for ECL calculations 0 - 0 0
Total 31 Dec 2021 -4 0 0 -4 2,592,873
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Forward-looking information
In the assessment of whether the credit risk of an instrument
has significantly increased (SICR) and in the measurement
of expected credit losses, forward-looking information and
macroeconomic scenarios are included in the model. These
macroeconomic projections cover a period of 3 years and as
no reliable macroeconomic projections exceeding a three-
year time horizon are available, forward-looking adjustment
will be limited to a three-year period. Mainly three scenarios
are used; base, optimistic and adverse. Scenarios include
probability weights. The scenario probability weightings are
described in the adjacent table.
SCENARIO
31 Dec 2022 31 Dec 2021
2023 2024 2025 2022 2023 2024
Adverse 30% 30% 30% 40% 40% 40%
Base 60% 60% 60% 50% 50% 40%
Optimistic 10% 10% 10% 10% 10% 20%
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
MuniFin Group has identified key drivers of credit losses
for each portfolio that share similar kinds of credit risk
characteristics and estimated the relationship between
macroeconomic variables and credit losses. The ECL
model consists of the following macroeconomic variables
for Finnish counterparties of financial assets: Finnish
government long-term interest rate, the development of
residential housing prices and unemployment rate. For
non-Finnish financial assets, stress test scenarios published
by the European Central Bank are employed in the model
and scenario parameters. Each variable covers an estimate
over a period of three years. The adjacent table presents
the macroeconomic variables and their forecasts over the
three-year forecast period.
MACROECONOMIC VARIABLES Scenario
31 Dec 2022 31 Dec 2021
2023 2024 2025 2022 2023 2024
10Y Fin Government rate, %
Adverse 4.0 3.6 3.4 1.2 0.5 0.3
Base 3.2 3.1 3.2 0.3 0.6 0.8
Optimistic 2.2 1.9 1.8 0.8 1.1 1.2
Residential Real Estate
(selling price, YoY change), %
Adverse -13.0 0.0 2.0 -8.0 -7.0 -2.0
Base -2.0 2.0 1.5 -2.0 -3.0 -1.4
Optimistic 0.0 3.0 2.5 3.5 3.0 1.5
Unemployment rate, %
Adverse 9.5 9.0 8.5 8.7 9.2 8.5
Base 7.4 7.3 6.8 6.9 6.5 6.3
Optimistic 6.5 6.0 5.8 6.5 6.0 5.8
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The Russian invasion of Ukraine has fundamentally changed the outlook of the Finnish
economy. Not only has consumer confidence weakened, but business expectations have also
taken a clear downward turn. Despite the challenging outlook, however, the Finnish economy
is facing the future from a better position than it did when the COVID-19 pandemic hit. The
service sector has revitalised after COVID restrictions were lifted, and employment rate is still
at its highest level since early 1990’s. The growth outlook is nevertheless bound to deteriorate
because of rising living costs and rapidly tightening monetary policy. MuniFin Group expects
output to contract 0.5% in 2023. From 2024 onwards, the economy will gradually converge
back to its long-term growth path and the annual pace of expansion is around 1.5%. Unemploy-
ment is expected to rise above 7% in 2023–2024. Unemployment rate returns to a moderately
declining trend from 2025 onwards. In the near term, high energy and food prices continue to
contribute to inflationary pressures. In the base scenario, Finnish consumer prices rise 6.7%
in 2022. Annual CPI inflation is expected to decline to 4.0% in 2023 and stabilise around 2% in
2024–2026. To make sure that future inflation expectations remain well anchored, the Euro-
pean Central Bank (ECB) is expected to continue raising interest rates in the first half of 2023.
The pace of monetary tightening slows down, however, as cost pressures gradually ease off.
On the national level, higher interest rates mitigate households’ home buying intentions. Home
prices cease to rise in 2022 and they are expected to contract 2.0% in 2023. For the rest of the
projection period, the annual increase in home prices is expected to settle around 1.5–2.0%.
Compared to the base scenario, MuniFin Group’s upside (optimistic) scenario factors in the
economic impact of the war in Ukraine to be less severe and inflationary pressures to ease
somewhat quicker. As a result, the Finnish GDP would grow faster in the subsequent two years
(1.0% in 2023 and 2.5% in 2024). In the upside scenario, unemployment rate continues its slow
decline during the whole projection period. Consumer price inflation accelerates to 6.0% in
2022 but cools down back to 2.5% already in 2023. Despite rising interest rates, relatively
steady housing demand prevents home prices from contracting in 2023. Thereafter, consumer
and home prices rise at about 2.0–3.0% pace in 2024–2026. As inflation starts declining
sooner, in the optimistic scenario the ECB raises interest rates less in 2023 than in the base
scenario. As a result, market interest rates also rise more slowly.
MuniFin Group’s downside (adverse) scenario represents a deeply stagflationary outcome
where the war in Ukraine leads to more persistent inflation and a contracting real economy.
Economic recession continues well into 2024. Unemployment rises more and remains high
much longer than in the base scenario. Rising energy and food prices trigger a wage inflation
spiral, making it harder for the the ECB to get future inflation expectations under control.
The ECB is forced to raise interest rates much higher than in the base case, deepening the
contraction in GDP. CPI inflation remains well above the ECB’s target through 2024. Lack
of demand in the housing market leads to a sharp decline in home prices. Prolonged global
recession creates tensions in financial markets, giving rise to wider risk premia in asset pricing.
The following table presents the sensitivity of the expected credit losses to the forward-
looking information assuming 100% weight for the adverse scenario until 2024 (2023).
SENSITIVITY ANALYSIS
(EUR 1,000)
31 Dec 2022 31 Dec 2021
Weighted
scenario
Adverse
scenario
(100%)
Weighted
scenario
Adverse
scenario
(100%)
ECL 1,171 1,547 859 1,150
Proportion of the exposure in
Stage 2 and 3 1.27% 2.57% 0.86% 1.15%
The sensitivity analysis does not include the additional discretionary provisions
(management overlay).
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Forbearance measures are concessions to original contractual payment terms agreed at the
customers’ initiative to help the customer through temporary payment difficulties. Performing
forborne exposures include forborne exposures reclassified as performing during their
probation period or forbearance measures made into a performing loan. Loan modifications
due to reasons other than the customer’s financial difficulties are not classified as forborne
exposures. The Group considers a loan forborne when such concessions or modifications are
provided as a result of the borrower’s present or expected financial difficulties and the Group
would not have agreed to them if the borrower had been financially healthy.
The COVID-19 pandemic affected the financial situation and liquidity of MuniFin Group’s
customers. The Group therefore offered concessions to the payment terms of loans to those
customers whose finances had been temporarily affected by the pandemic. Only a few
individual repayment holidays have been extended during 2022 and 2021. The uncollected
installments were mainly transferred to the end of the loan term to be paid in connection with
the last installment. No lease concessions were granted to the Group’s leasing customers.
Realised credit losses
The Group has not had any final realised credit losses during the financial year or the
comparison year.
Non-performing and forborne exposures
Non-performing and forborne exposures refer to receivables that are more than 90 days past due, other receivables classified as risky and forborne exposures due to the customer’s financial
difficulties.
NON-PERFORMING AND FORBORNE EXPOSURES
31 Dec 2022 (EUR 1,000) Performing exposures
Non-performing
exposures Total exposures
Total expected
credit losses
Total exposures
(net)
Over 90 days past due - 4,087 4,087 -13 4,074
Unlikely to be paid - 509 509 0 509
Forborne exposures 77,268 2,513 79,780 -478 79,303
Tot a l 77,268 7,110 84,377 -491 83,886
NON-PERFORMING AND FORBORNE EXPOSURES
31 Dec 2021 (EUR 1,000) Performing exposures
Non-performing
exposures Total exposures
Total expected
credit losses
Total exposures
(net)
Over 90 days past due - 16,813 16,813 -82 16,731
Unlikely to be paid - 85,559 85,559 -8 85,551
Forborne exposures 61,862 25,849 87,711 -238 87,473
Tot a l 61,862 128,221 190,083 -328 189,755
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 27. Intangible assets
Note 28. Tangible assets
(EUR 1,000) 31 Dec 2022 31 Dec 2021
IT systems 8,831 12,296
, of which assets not yet available for use 1,050 3,752
Tot al 8,831 12,296
(EUR 1,000) 31 Dec 2022 31 Dec 2021
Real estate 299 299
Office renovation expenses 5 9
Right-of-use assets 3,198 4,442
Other tangible assets 1,559 2,742
Tot al 5,062 7,491
The intangible assets not yet available for use consist
of ongoing development projects of IT systems.
The principles of MuniFin Group’s impairment
testing for intangible assets not yet available for use
are described in the accounting policies (Note 1) in
Section 15. Intangible assets.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 29. Changes in intangible and tangible assets during the financial year
2022 (EUR 1,000)
Intangible assets Tangible assets
Tot a l Real estate Other tangible assets Right-of-use assets To t al
Acquisition cost 1 Jan 39,841 299 8,585 9,335 18,219
+ Additions 3,988 - 16 614 630
- Disposals -15,755 - -1,371 -131 -1,502
Acquisition cost 31 Dec 28,074 299 7,230 9,818 17,347
Accumulated depreciation and impairment charges 1 Jan 27,545 - 5,835 4,893 10,728
- Accumulated depreciation on disposals -710 - -1,302 -112 -1,413
+ Depreciation according to plan 2,890 - 1,132 1,839 2,971
+/- Impairment and reversals * -10,482 - - - -
Accumulated depreciation and impairment charges 31 Dec 19,243 - 5,665 6,620 12,285
Carrying amount 31 Dec 8,831 299 1,565 3,198 5,062
* The line item includes a non-recurring item of impairment change of EUR -10,482 thousand on MuniFin Group’s significant terminated IT system implementation.
2021 (EUR 1,000)
Intangible assets Tangible assets
Tot a l Real estate Other tangible assets Right-of-use assets To t al
Acquisition cost 1 Jan 31,630 299 8,950 9,152 18,401
+ Additions 8,660 - 3 212 215
- Disposals -449 - -367 -29 -396
Acquisition cost 31 Dec 39,841 299 8,585 9,335 18,219
Accumulated depreciation 1 Jan 14,283 - 4,840 3,197 8,037
- Accumulated depreciation on disposals - - -226 -29 -255
+ Depreciation according to plan 2,780 - 1,221 1,725 2,946
+ Impairment * 10,482 - - - -
Accumulated depreciation and impairment charges 31 Dec 27,545 - 5,835 4,893 10,728
Carrying amount 31 Dec 12,296 299 2,751 4,442 7,491
* The line item includes a non-recurring item of impairment of EUR 10,482 thousand on MuniFin Group’s significant ongoing IT system implementation.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 30. Other assets
Note 31. Accrued income and prepayments
(EUR 1,000) 31 Dec 2022 31 Dec 2021
Invoiced leasing payments 11,391 15,084
Given cash collateral to CCPs * 1,219,541 238,930
Other 3,878 2,103
Tot al 1,234,810 256,117
* Cash collaterals include expected credit losses amounting to EUR 203 thousand (EUR 13 thousand).
The Group did not have receivables related to payment transfers as at 31 Dec 2022 or at 31 Dec 2021.
(EUR 1,000) 31 Dec 2022 31 Dec 2021
Accrued interest income 218,417 211,067
Other accrued income 7 231
Prepayments 4,680 1,356
Tot al 223,104 212,655
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 32. Deferred tax
DEFERRED TAX ASSETS
(EUR 1,000) 1 Jan 2022
Recognised in the
income statement
Recognised in the other
comprehensive income Recognised in equity 31 Dec 2022
On fair value reserve - - 763 - 763
Tot al - - 763 - 763
DEFERRED TAX LIABILITIES
(EUR 1,000) 1 Jan 2022
Recognised in the
income statement
Recognised in the other
comprehensive income Recognised in equity 31 Dec 2022
On fair value reserve 3,499 - -3,499 - -
On change in cumulative depreciation difference 5,544 7,038 - - 12,582
On change in voluntary provisions 278,506 630 - - 279,136
On reversing the accrued interest of the AT1 capital loan recorded in the financial
statements of the Parent Company 2,365 785 - -3,150 -
On reversing the amortisation of the AT1 capital loan transaction expenses recorded
in the financial statements of the Parent Company -24 24 - - -
On right-of-use assets -1 0 - - -1
Tot al 289,887 8,478 -3,499 -3,150 291,717
DEFERRED TAX LIABILITIES
(EUR 1,000) 1 Jan 2021
Recognised in the
income statement
Recognised in the other
comprehensive income Recognised in equity 31 Dec 2021
On fair value reserve 4,054 - -555 - 3,499
On change in cumulative depreciation difference 4,105 1,439 - - 5,544
On change in voluntary provisions 269,506 9,000 - - 278,506
On reversing the accrued interest of the AT1 capital loan recorded in the financial
statements of the Parent Company 2,365 3,150 - -3,150 2,365
On reversing the amortisation of the AT1 capital loan transaction expenses recorded
in the financial statements of the Parent Company -122 98 - - -24
On right-of-use assets -1 0 - - -1
Tot al 279,906 13,687 -555 -3,150 289,887
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 33. Liabilities to credit institutions
(EUR 1,000) 31 Dec 2022 31 Dec 2021
Bilateral loans to credit institutions 88,183 59,906
TLTRO * 2,000,000 2,000,000
Received collateral on derivatives 244,440 741,110
Tot al 2,332,623 2,801,016
* In September 2020, MuniFin participated in the third series of targeted longer-term
refinancing operations that is, the so-called TLTRO III operation (No. 5) with EUR 1.25 billion. In
June 2021, MuniFin participated in TLTRO III operation (No. 8) with EUR 750 million. According
to the terms of the TLTRO III operation, if eligible net lending is positive during the reference
period (1 March 2020–31 March 2021) the interest rate for TLTRO III debt is 0.5% lower than
the average deposit facility rate for borrowings between 24 June 2020 and 23 June 2021. This
would equate to an all-in rate of -1%. On 10 December 2020, the ECB issued an update to the
terms and conditions so that the low-interest period was extended from 24 June 2021 to 23
June 2022, if the conditions for net lending were met in the reference period from 1 October
2020 to 31 December 2021.
The interest rate until 23 June 2022 was determined based on the net lending review period
expired on 31 December 2021. MuniFin Group met the net lending criteria for this period to
the lower interest rate and recognised the interest with the -1% rate until 23 June 2022. After
the special interest rate periods, the interest rate was determined as the average of the ECB
overnight deposit rates to maturity. Additionally, the interest rate terms changed starting from
23 November 2022. Therefore, a new last interest rate period was determined, the interest rate
of which is defined as the average of the ECB rates during that last interest rate period. The final
interest rate will be determined when the TLTRO III debt matures as a weighted average of the
interest rates of all the different interest rate periods.
Although the interest rate for the TLTRO III debt described above is favorable for MuniFin
Group, it is assessed not to differ from the Group’s other funding price to the extent that the
Group would have received a government grant in accordance with IAS 20. Therefore, the
Group treats TLTRO III debt in its entirety as an IFRS 9 financial liability.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 34. Liabilities to the public and public sector entities
(EUR 1,000) 31 Dec 2022 31 Dec 2021
Notes to the public and public sector entities 2,529,585 3,324,685
Tot al 2,529,585 3,324,685
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 35. Debt securities issued
31 Dec 2022 31 Dec 2021
(EUR 1,000) Carrying amount Nominal value Carrying amount Nominal value
Bonds 30,942,233 34,330,170 31,508,271 32,041,076
Other * 4,649,832 4,668,524 3,819,254 3,820,738
Tot a l 35,592,065 38,998,694 35,327,525 35,861,814
* Line item contains short-term funding issued by MuniFin.
All funding issued by MuniFin is guaranteed by the Municipal Guarantee Board.
BENCHMARK ISSUANCES DURING THE YEAR 2022 Value date Maturity date Interest-% Nominal value (1,000) Currency
Fixed rate benchmark bond, issued under the MTN programme 25 Jan 2022 25 Feb 2032 0.250% 1,000,000 EUR
Fixed rate benchmark bond, issued under the MTN programme 17 May 2022 17 May 2029 1.500% 500,000 EUR
Fixed rate benchmark bond, issued under the MTN programme 24 Aug 2022 24 Aug 2027 3.250% 1,000,000 USD
In the above table, the benchmark issuances are included by the settlement date. The offering circular is available in English on the website at www.munifin.fi/investor-relations.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 36. Reconciliation of the carrying amount of the issued debt
2022 2021
(EUR 1,000)
Liabilities to credit
institutions
Liabilities to the
public and public
sector entities
Debt securities
issued
Liabilities to credit
institutions
Liabilities to the
public and public
sector entities
Debt securities
issued
Carrying amount 1 Jan 2,059,906 3,324,685 35,327,525 1,343,358 3,884,026 32,911,906
Cash flow changes from operating activities
Additions to issued debt "bonds" 46,609 147,351 7,680,928 761,335 197,473 7,894,520
Additions to debt securities issued "other" - - 25,303,337 - - 13,219,018
Additions total 46,609 147,351 32,984,265 761,335 197,473 21,113,537
Deductions to issued debt "bonds" - -267,534 -5,541,011 -38,567 -587,713 -5,119,486
Deductions to debt securities issued "other" - - -24,472,759 - - -13,295,584
Deductions total - -267,534 -30,013,769 -38,567 -587,713 -18,415,070
Cash flow changes from operating activities in total 46,609 -120,183 2,970,495 722,767 -390,240 2,698,468
Changes in the balance sheet value including valuations and
FX revaluations -18,332 -674,917 -2,705,955 -6,219 -169,101 -282,849
Carrying amount 31 Dec 2,088,183 2,529,585 35,592,065 2,059,906 3,324,685 35,327,525
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 37. Provisions and other liabilities
(EUR 1,000) 31 Dec 2022 31 Dec 2021
Provisions
Restructuring provision - -
Other provisions 446 446
Other liabilities
Lease liabilities 3,269 4,528
Cash collateral taken from CCPs 570,922 333,295
Other 19,210 11,062
Tot a l 593,848 349,331
Line item Other provisions relates to a tax interpretation issue for which the Group requested a preliminary ruling and for which the Group is waiting for the final decision of the Supreme
Administrative Court.
(EUR 1,000)
Restructuring provision Other provisions
2022 2021 2022 2021
Carrying amount 1 Jan - 562 446 -
Increase in provisions - - 5,100 446
Provisions used - -562 -5,100 -
Carrying amount 31 Dec - - 446 446
During the financial year 2021, the restructuring provision related to the reorganisation of the Group’s operations in financial year 2020 was fully used. Increase in provisions and provision used in
2022 relate to the IT implementation project, which was terminated in 2022.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 38. Accrued expenses and deferred income
(EUR 1,000) 31 Dec 2022 31 Dec 2021
Accrued interest expenses 139,779 123,056
Other accrued expenses 8,304 41,812
Deferred income * 18,552 16,864
Tot al 166,635 181,732
* Item consists mainly of leasing income.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 39. Equity
(EUR 1,000) 31 Dec 2022 31 Dec 2021
Share capital 42,583 42,583
Reserve fund 277 277
Fair value reserve of investments -4,457 309
Own credit revaluation reserve -83 64
Cost-of-Hedging reserve 1,488 13,621
Reserve for invested non-restricted equity 40,366 40,366
Retained earnings 1,533,535 1,416,916
Total equity attributable to Parent Company equity holders 1,613,709 1,514,136
Other equity instruments issued - 350,000
Transaction costs deducted from other equity instruments issued - -2,546
Total other equity instruments issued - 347,454
Total equity 1,613,709 1,861,590
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Share capital
The shares of the Parent Company, Municipality Finance Plc, are divided into A and B shares.
The two types are equal in terms of voting rights and the distribution of profit. Each share
entitles its holder to one vote. The shares have no nominal value. The acquisition of shares
is restricted through the consent and redemption clauses of the Articles of Association.
All issued shares have been paid in full. Since September 2009, the amount of shares of the
Parent Company has been 39,063,798.
Reserves in equity
Reserve fund is restricted equity referred to in Chapter 8, Section 1 of the Limited Liability
Companies Act. Fair value reserve of investments contains the fair value changes of financial
instruments at fair value through other comprehensive income. Own credit revaluation reserve
contains the changes in own credit risk of financial liabilities designated at fair value through
profit or loss. Cost-of-Hedging reserve contains the impact of Cost-of-Hedging of derivatives in
fair value hedge accounting. The proportion of payment made for shares that is not recorded
in share capital is recognised in the Reserve for invested non-restricted equity. Under the terms
of the Parent Company’s 2009 share issue, the funds collected through the share issue are
recorded in the Reserve for invested non-restricted equity. Retained earnings contains the
profit of previous periods.
Other issued equity instruments
MuniFin redeemed its EUR 350 million Perpetual Fixed rate Resettable Additional Tier
1 Securities originally issued on 1 October 2015. The redemption date was 1 April 2022,
which is the first repayment date of the Securities in accordance with the terms and conditions
thereof. The Securities were redeemed at 100% of the aggregate nominal amount together
with accrued and unpaid interest until the redemption date.
Instrument’s terms and conditions:
The capital instrument issued by the Parent Company is an unsecured debenture loan included
under Additional Tier 1 capital, with special terms designed to fulfil the requirements set for
so-called AT1 capital loans in the Capital Requirements Regulation (EU 575/2013). The loan
does not have a maturity date. Interest on the loan may only be paid out of distributable funds
in accordance with the terms set in the Capital Requirements Regulation, and MuniFin will
decide whether interest will be paid on the interest payment date. The cancellation of interest
payments is final, and unpaid interest will not be added to the loan capital. MuniFin has the right
but not the obligation to repay the loan on 1 April 2022 or, after that, annually on the interest
payment date, as long as the buy-back is approved in advance by the regulatory authority.
Due to terms stated above, the AT1 capital loan is recognised as equity in the Consolidated
Financial Statements.
The main features of capital instruments are described in further detail in the Pillar III Disclosure
Report, which is available on MuniFin’s website in English. The Pillar III Disclosure Report is
separate from this Report of the Board of Directors and the Financial Statements.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 40. Contingent assets and liabilities
The Group has no contingent assets or liabilities at 31 Dec 2022. Previously, the accrued
interest on AT1 capital instrument, issued by the Parent Company, comprised contingent
liability at the reporting date. The contingent liability was realised as a deduction of equity once
the Parent Company decided on the payment of interest. AT1 capital instrument was redeemed
at 1 April 2022. At 31 December 2021, MuniFin had a contingent liability of EUR 9,459 thousand.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 41. Collateral given
GIVEN COLLATERALS ON BEHALF OF OWN LIABILITIES AND COMMITMENTS
(EUR 1,000) 31 Dec 2022 31 Dec 2021
Loans and advances to credit institutions to the counterparties of derivative contracts * 1,400,559 1,310,576
Loans and advances to credit institutions to the counterparties of repurchase agreements ** 514 -
Loans and advances to credit institutions to the central bank *** 31,745 35,984
Loans and advances to the public and public sector entities to the central bank *** 3,676,627 4,716,147
Loans and advances to the public and public sector entities to the Municipal Guarantee Board **** 12,101,459 11,474,101
Debt securities to the counterparties of repurchase agreements ** 9,580 -
Debt securities to the central counterparty 24,942 -
Other assets to the counterparties of derivative contracts * 1,219,541 238,930
Tot al 18,464,967 17,775,738
* MuniFin Group has pledged collateral to the counterparties of derivative contracts based
on the CSA agreements of the derivative contracts (ISDA/Credit Support Annex).
** MuniFin Group has pledged collateral to the counterparties of repurchase agreements
based on the GMRA (General Master Repurchase Agreement).
*** MuniFin is a monetary policy counterparty approved by the central bank (the Bank of
Finland) and for this purpose, collateral has been pledged to the central bank for possible
operations related to this counterparty position.
**** MuniFin Group has pledged loans shown in the table to the Municipal Guarantee Board.
The Municipal Guarantee Board guarantees MunFin’s funding and MuniFin places
collateral for the Municipal Guarantee Board’s guarantees as defined in the Act on the
Municipal Guarantee Board.
Collateral given is presented at the carrying amounts of the financial statement date.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 42. Off-balance-sheet commitments
(EUR 1,000) 31 Dec 2022 31 Dec 2021
Credit commitments 2,463,978 2,592,877
Tot al 2,463,978 2,592,877
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 43. Related-party transactions
MuniFin Group’s related parties include:
• MuniFin’s shareholders whose ownership and corresponding voting rights in
the Company exceed 20%.
• The key management personnel including the CEO, the Deputy to the CEO,
other members of the Executive Management Team, members of the
Board of Directors, the spouses, children and dependents of these persons
and the children and dependents of these persons’ spouses.
• Entities, which are directly or indirectly controlled or jointly controlled by the
above-mentioned persons or where these persons have significant influence.
• MuniFin’s related party is also its Subsidiary Financial Advisory Services Inspira Ltd.
The Group’s operations are restricted by the Act on the Municipal Guarantee Board and the
framework agreement concluded between MuniFin and the Municipal Guarantee Board, pursuant
to which MuniFin may only grant loans to parties stipulated by law (municipalities, joint municipal
authorities, corporations that are wholly owned by municipalities or under their control, wellbeing
services counties and joint county authorities for wellbeing services, other units of wellbeing ser-
vices counties that are wholly owned or under control of wellbeing services county administration
and wellbeing services enterprises, and corporations designated by government authorities and
engaged in the renting or production and maintenance of housing on social grounds).
The Group has carried out only employment-based remuneration transactions with the related
party persons. The Group does not have loan or financial receivables from these related parties.
Transactions with Inspira comprise fees related to administrative services, and advisory services
MuniFin has purchased from Inspira.
There have been no material changes in the related party transactions and relationships during
the financial year.
TRANSACTIONS WITH THE SUBSIDIARY
(EUR 1,000) 2022 2021
Sales 36 37
Purchases -145 -548
INTRA-GROUP RECEIVABLES AND LIABILITIES
(EUR 1,000) 31 Dec 2022 31 Dec 2021
Receivables 3 6
Liabilities 25 78
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 44. Salaries and remuneration
The salaries and remuneration shown in the table include both the fixed remuneration and
paid variable remuneration. According to regulation on credit institutions, the payment of
variable remuneration earned each year is delayed and paid over the following years if a
person’s remuneration exceeds EUR 50,000. More information on the salary and remuneration
principles are available on a Pillar III Disclosure Report separate from this Report of Board of
Directors and the Financial Statements. Pillar III Disclosure Report is available in English on
MuniFin’s website. The salaries and remuneration consist of short-term employee benefits
excluding termination benefits. Such termination benefits have not occurred in 2022 or 2021.
The Group has provided to those members of the Executive Management Team (EMT) that
have been appointed as members (including CEO and the Deputy to the CEO) before 21 Dec
2017 with a contribution-based group pension insurance. Members of the EMT are entitled to
pension from the insurance after they have turned 63 years.
In the event of a termination of the employment on MuniFin’s initiative, the CEO and Deputy to
the CEO are entitled to a severance payment of six times the total monthly salary. The period
of notice for termination of employment is six months for the CEO and the Deputy to the CEO.
Employee benefits for the CEO and the Deputy to the CEO are terminated at the end of the
period of notice.
The CEO of MuniFin is Mr Esa Kallio and Executive Vice President Ms Mari Tyster acts as
a Deputy to the CEO. Figures reported in this note include remuneration paid to Esa Kallio
under President and CEO and remuneration paid to Mari Tyster under Deputy to the CEO
respectively.
The retirement age for the CEO and the Deputy to the CEO is stipulated by the Employees
Pensions Act.
Employee benefits for management
Salaries and remuneration paid to MuniFin’s CEO, Deputy to the CEO and other members of
the Executive Management Team subject to withholding tax are described in the table below.
SALARIES AND REMUNERATION (EUR 1,000) 2022 2021
President and CEO -435 -430
Deputy to the CEO -272 -224
Other members of the Executive Management Team in total -1,436 -1,307
Tot al -2,142 -1,961
MuniFin has paid the following statutory pension contributions related to the CEO, the Deputy
to the CEO and other members of the Executive Management Team.
STATUTORY PENSION CONTRIBUTIONS (EUR 1,000) 2022 2021
President and CEO -74 -71
Deputy to the CEO -46 -37
Other members of the Executive Management Team in total -244 -216
Tot al -364 -324
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
SALARIES AND REMUNERATION
(EUR 1,000)
Members of the Board of Directors 2022 2021
Helena Walldén, Chair until 25 March 2021 - -14
Kari Laukkanen, Chair 25 March 2021 onwards -54 -52
Tuula Saxholm, Vice Chair until 25 March 2021 - -9
Maaria Eriksson, Vice Chair 25 March 2021 onwards -35 -32
Markku Koponen -43 -42
Vivi Marttila -33 -31
Tuomo Mäkinen, elected 25 March 2021 -31 -22
Minna Smedsten, elected 25 March 2021 -34 -22
Denis Strandell -34 -31
Leena Vainiomäki, elected 25 March 2021 -40 -30
Kimmo Viertola, member until 25 March 2021 -7 -28
Tot al -310 -313
Remuneration of the Board of Directors
During the term 2022–2023, the members of the Board of Directors of the Parent Company
are paid an annual remuneration as well as remuneration for each meeting in accordance
with the decision of the Annual General Meeting. The annual remuneration is EUR 40,000
for the Chair of the Board, EUR 26,000 for the Vice Chair, EUR 28,000 for the Chairs of
Committees and EUR 23,000 for the other members of the Board. The remuneration paid for
Board and Committee meetings is EUR 800 per meeting for the Chair of the Board and the
Chairs of Committees and EUR 500 per meeting for the other members. In addition, meeting
remuneration is paid for the meetings required by the supervisory authorities.
During the term 2021–2022, the annual remuneration was EUR 35,000 for the Chair of the
Board, EUR 23,000 for the Vice Chair, EUR 25,000 for the Chairs of Committees and EUR
20,000 for the other members of the Board. The meeting remuneration has remained at the
same level. These remunerations are valid also in term 2020–2021.
Salaries and remuneration
The remuneration paid to the management and employees of MuniFin Group consists of a
fixed remuneration (base salary and fringe benefits) and a variable remuneration based on the
conditions of the remuneration system. Principles of the remuneration system are confirmed
by the Board of Directors on an annual basis. The Remuneration Committee of the Board of
Directors is responsible for preparatory work concerning the matters of the remuneration
system. More information about salaries and remuneration is available on MuniFin’s website
www.munifin.fi.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 45. Events after the reporting period
MuniFin’s Board of Directors is not aware of any events having taken place after the end of the
financial year that would have a material effect on the Group’s financial standing.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Parent Company's
Financial Statements
P ar en t C ompan y’s Financial S t a t emen t s
(FAS)
Emoyhtiön tilinpäätös
(EUR 1,000) Note Jan–Dec 2022 Jan–Dec 2021
Interest income (2) 701,563 497,170
Net income from leasing operations (3) 10,177 6,366
Interest expense (2) -474,631 -239,571
Net interest income 237,109 263,965
Commission income (5) 870 978
Commission expense (5) -5,514 -5,053
Net income from securities and foreign exchange transactions (6) 8,140 24,095
Net income from securities 8,288 22,707
Net income from foreign exchange transactions -148 1,388
Net income on financial assets at fair value through fair value reserve (8) -149 -
Net income from hedge accounting (9, 25) 36,444 4,823
Other operating income (11) 126 132
Administrative expenses -36,071 -33,493
Personnel expenses (48) -17,558 -16,490
Salaries and fees -14,527 -13,671
Personnel-related costs -3,031 -2,820
Pension costs -2,526 -2,208
Other personnel-related costs -505 -612
Other administrative expenses -18,512 -17,003
Depreciation and impairment on tangible and intangible assets (12) -10,299 -16,091
Other operating expenses (13) -19,833 -15,876
Expected credit losses on financial assets at amortised cost (14) 120 -105
Expected credit losses and impairments on other financial assets (14) -3 0
Net operating profit 210,941 223,376
Appropriations -38,342 -52,193
Income taxes -34,538 -34,374
Profit for the financial year 138,061 136,809
The accompanying notes are an integral part of the Financial Statements.
Parent Company's Income Statement
P ar en t Compan y’s Income
Sta t emen t
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
P ar en t Compan y’s Balance
Shee t
(EUR 1,000) Note 31 Dec 2022 31 Dec 2021
Assets
Cash and balances with central banks (17) 2 8,399,045
Cash 2 2
Central bank receivables payable on demand - 8,399,043
Debt securities eligible for central bank refinancing (20) 2,890,174 3,312,054
Other 2,890,174 3,312,054
Loans and advances to credit institutions (18) 9,624,470 1,416,564
Payable on demand 47,604 35,712
Other 9,576,866 1,380,851
Loans and advances to the public and public sector entities (19) 27,841,267 27,879,897
Leased assets (21) 1,303,094 1,334,146
Debt securities (20) 1,896,594 1,529,374
From public sector entities 1,246,326 930,252
From others 650,267 599,122
Shares and participations (23) - -
Shares and participations in Group companies (23) 656 656
Derivative contracts (24) 2,707,103 1,999,676
Intangible assets (26, 28) 8,837 12,305
Tangible assets (27, 28) 4,835 7,188
Other tangible assets 4,835 7,188
Other assets (29) 1,234,662 255,938
Accrued income and prepayments (30) 223,088 212,612
Deferred tax assets (31) 763 -
Total assets (16, 37, 38, 40) 47,735,546 46,359,453
Parent Company's Balance Sheet
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
(EUR 1,000) Note 31 Dec 2022 31 Dec 2021
Liabilities and equity
Liabilities
Liabilities to credit institutions and central banks 2,332,623 2,801,016
To central banks 2,000,000 2,000,000
To credit institutions 332,623 801,016
Other 332,623 801,016
Liabilities to the public and public sector entities 2,529,585 3,324,685
Other liabilities 2,529,585 3,324,685
Debt securities issued (32) 35,592,065 35,327,525
Bonds 30,942,233 31,508,271
Other 4,649,832 3,819,254
Derivative contracts (24) 4,616,111 2,224,294
Other liabilities (33) 593,547 349,014
Other liabilities 593,101 348,568
Provisions 446 446
Accrued expenses and deferred income (34) 166,274 193,323
Subordinated liabilities (35) - 349,878
Deferred tax liabilities (31) - 3,499
Total liabilities (16, 37, 38, 40) 45,830,205 44,573,233
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
(EUR 1,000) Note 31 Dec 2022 31 Dec 2021
Appropriations
Depreciation difference 62,910 27,718
Taxation based provisions 1,395,680 1,392,530
Total appropriations 1,458,590 1,420,248
Equity (42, 43, 44)
Share capital 43,008 43,008
Other restricted reserves -2,775 14,271
Reserve fund 277 277
Fair value reserve -3,052 13,994
Change in fair value -3,052 13,994
Non-restricted reserves 40,743 40,743
Reserve for invested non-restricted equity 40,743 40,743
Retained earnings 227,714 131,141
Profit for the financial year 138,061 136,809
Total equity 446,750 365,972
Total liabilities and equity 47,735,546 46,359,453
Off-balance sheet commitments (47)
Irrevocable commitments given in favour of customer 2,463,978 2,592,877
The accompanying notes are an integral part of the Financial Statements.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
P ar en t Compan y’s
Sta t emen t o f Cash Flo w s
Parent Company's Statement of Cash Flows
(EUR 1,000) Jan–Dec 2022 Jan–Dec 2021
Cash flow from operating activities -7,991,589 2,734,814
Net change in long-term funding 2,063,033 3,085,073
Net change in short-term funding 1,103,027 -354,008
Net change in long-term loans -1,637,350 -1,580,112
Net change in short-term loans -368,992 224,130
Net change in investments -7,919,967 667,724
Net change in collaterals -1,332,255 480,083
Interest on assets 97,307 16,879
Interest on liabilities 78,156 205,845
Other income 52,430 72,778
Payments of operating expenses -60,259 -87,158
Taxes paid -66,720 3,579
Cash flow from investing activities -3,550 -7,747
Acquisition of tangible assets -16 -3
Proceeds from sale of tangible assets 149 226
Acquisition of intangible assets -3,684 -7,970
Cash flow from financing activities -392,012 -22,116
Change in subordinated liabilities -350,000 -
Dividends paid -40,236 -20,313
Total cash flow from leases -1,776 -1,803
Change in cash and cash equivalents -8,387,151 2,704,951
Cash and cash equivalents at 1 January 8,434,757 5,729,806
Cash and cash equivalents at 31 December 47,606 8,434,757
The accompanying notes are an integral part of the Financial Statements.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Notes to the Parent Company's accounting policies
Note 1. Significant accounting policies of the Parent
Company's Financial Statements, FAS
Notes to the income statement
Note 2. Interest income and expense
Note 3. Net income from leasing operations
Note 4. Income from equity investments
Note 5. Commission income and expense
Note 6. Net income from securities and
foreign exchange transactions
Note 7. Financial assets and liabilities designated
at fair value through profit or loss
Note 8. Net income on financial assets at fair
value through fair value reserve
Note 9. Net income from hedge accounting
Note 10. Impact of the reclassified financial
assets and liabilities
Note 11. Other operating income
Note 12. Depreciation and impairment on
tangible and intangible assets
Note 13. Other operating expenses
Note 14. Credit losses and impairments
on financial assets
Note 15. Information on business areas
and geographical market
Notes to the balance sheet
Note 16. Financial assets and liabilities
Note 17. Cash and cash equivalents
Note 18. Loans and advances to credit institutions
Note 19. Loans and advances to the public
and public sector entities
Note 20. Debt securities
Note 21. Leased assets
Note 22. Credit risks of financial assets
and other commitments
Note 23. Shares and participations
Note 24. Derivative contracts
Note 25. Hedge accounting
Note 26. Intangible assets
Note 27. Tangible assets
Note 28. Changes in intangible and tangible
assets during the financial year
Note 29. Other assets
Note 30. Accrued income and prepayments
Note 31. Deferred tax assets and liabilities
Note 32. Debt securities issued
Note 33. Other liabilities
Note 34. Accrued expenses and deferred income
Note 35. Subordinated liabilities
Note 36. Act on the Resolution of Credit
Institutions (1194/2014)
Note 37. Breakdown of financial assets and
liabilities at carrying amount by maturity
Note 38. Breakdown of balance sheet items
into domestic and foreign currency
Note 39. Repurchase agreements
Note 40. Fair values and carrying amounts of
financial assets and liabilities
Note 41. Fair value hierarchy of financial
assets and liabilities
Note 42. Equity
Note 43. Share capital
Note 44. Largest shareholders
Notes on collateral and contingent liabilities
Note 45. Collateral given
Note 46. Pension liabilities
Note 47. Off-balance sheet commitments
Notes on personnel and management
Note 48. Personnel
Related party transactions
Note 49. Loans and other financial receivables
from the related parties
Holdings in other companies
Note 50. Holdings in other companies
Other notes
Note 51. Audit and other fees paid to the audit firm
No t es t o the P ar en t
Compan y’s Financial
Statements
Notes to the Parent Company's Financial Statements
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 1. Significant accounting policies of the Parent Company's Financial Statements, FAS
Notes to the Parent Company's accounting policies
Municipality Finance Plc (MuniFin) prepares its Financial
Statements in accordance with the Act on Credit Institutions,
the Ministry of Finance Decree on Credit Institutions and the
Financial Supervisory Authority Regulations and Guidelines
2/2016. The Company reports regularly on its operations
to the European Central Bank, the Finnish Financial
Supervisory Authority, the Bank of Finland, the Municipal
Guarantee Board and Statistics Finland. Municipality
Finance Plc is the Parent Company of Municipality Finance
Group (MuniFin Group). The significant accounting policies
and the presentation of the Financial Statements of the
Parent Company, Municipality Finance Plc, correspond
to the accounting policies of the Consolidated Financial
Statements (Note 1) with the exceptions described below.
Debt securities
Debt securities are presented in the Parent Company’s
Financial Statements under two balance sheet items: Debt
securities eligible for central bank refinancing and Debt
securities, so that Debt securities eligible for central bank
refinancing, contains, as the name implies, debt securities
eligible for central bank refinancing.
Leases
Leases in which MuniFin acts as the lessee are treated in the
Parent Company in accordance with the accounting policies
described in the Consolidated Financial Statements. Leases
in which MuniFin is a lessor, have been classified as finance
leases in the Financial Statements of both the Group and the
Parent Company. The accounting treatment of finance leases
does not differ from Group to Parent Company, but the leased
assets are presented on line Loans and advances to the
public and public sector entities in the Consolidated Financial
Statements. In the Parent Company, they are presented on
line Leased assets. Income related to leasing operations is
presented under the income statement item Net income from
leasing operations. In the Consolidated Financial Statements,
this income is presented under Interest and similar income.
Other long-term expenses
Other long-term expenses include expenses intended
to generate income in several financial years that are not
objects, separately transferable rights or other assets.
MuniFin’s other long-term expenses consist of renovation
expenses for leased premises. These items are presented
in the Parent Company’s Financial Statements as part of
Intangible assets under item Other intangible assets and in the
Consolidated Financial Statements as part of Tangible assets
under item Office renovation expenses. The depreciation
period for the renovation expenses of the leased premises is
consistent with the lease term.
Appropriations
The difference between the depreciation according to plan
and the depreciation of assets in taxation (Depreciation
difference), and the voluntary credit loss provision (Taxation
based provisions) are presented under Total appropriations
in the balance sheet of the Parent Company. In the income
statement, the change in depreciation difference and credit
loss provision is shown on line Appropriations. The voluntary
credit loss provision and depreciation difference recognised
under the Finnish Accounting Standards do not meet the
recognition criteria set out in IAS 37 Provisions, Contingent
Liabilities and Contingent Assets, and the credit loss provision
and depreciation difference are thus released in the Consoli-
dated Financial Statements into equity and deferred tax liability
in accordance with IAS 12 Income Tax. The Parent Company’s
credit loss provisions are recognised in accordance with tax
law (Act on the Taxation of Business Income 46§).
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Fair value reserve
According to the Act on Credit Institutions certain fair
value changes are required to be recorded in the fair value
reserve within equity. The fair value reserve corresponds
to term other comprehensive income used in IFRS 9 and
in the accounting policies of the Consolidated Financial
Statements. The following fair value changes are presented
in fair value reserve: fair value changes of financial assets at
fair value through other comprehensive income, changes
in fair value due to changes in own credit risk of financial
liabilities designated at fair value through profit or loss
and Cost-of-Hedging from fair value hedge accounting,
consisting of cross currency basis spread which has been
separated and excluded from the hedge relationship.
AT1 capital loan
MuniFin redeemed its EUR 350 million Perpetual Fixed rate
Resettable Additional Tier 1 Securities originally issued
on 1 October 2015. The redemption date was 1 April 2022,
which was the first repayment date of the Securities in
accordance with the terms and conditions thereof. The
Securities were redeemed at 100% of the aggregate
nominal amount together with accrued and unpaid interest
until the redemption date. The loan terms and conditions
are disclosed in Note 35 Subordinated liabilities. In the
Parent Company’s Financial Statements the AT1 capital
loan is recognised as debt under the balance sheet item
Subordinated liabilities. Interest paid on the AT1 capital loan is
recognised in the income statement under Interest expense.
AT1 capital loan is recognised as equity in the Consolidated
Financial Statements. Interest payments are recognised
in the Consolidated Financial Statements as a deduction
from equity in accordance with the issuer’s interest payment
decisions.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Notes to the income statement
The Company has not combined any items in the income statement under Chapter 2, Section 14(4), of the Ministry of Finance Decree.
Note 2. Interest income and expense
(EUR 1,000)
Jan–Dec 2022 Jan–Dec 2021
Interest and
similar income
Interest and
similar expense Net
Interest and
similar income
Interest and
similar expense Net
Assets
Amortised cost
Cash and balances with central banks 30,304 -26,828 3,475 - -38,619 -38,619
Loans and advances to credit institutions 8,290 -8,346 -56 46 -7,841 -7,796
Loans and advances to the public and public sector entities 220,905 - 220,905 188,484 - 188,484
Debt securities 5,345 -3,206 2,140 9 -5,335 -5,326
Other assets 8,019 - 8,019 1,121 - 1,121
Fair value through fair value reserve
Debt securities 9 - 9 - -589 -589
Designated at fair value through profit or loss
Loans and advances to the public and public sector entities 348 - 348 236 - 236
Debt securities 9,436 - 9,436 8,422 - 8,422
Mandatorily at fair value through profit or loss
Loans and advances to the public and public sector entities 827 - 827 933 - 933
Debt securities - - - - - -
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 92,225 -87,665 4,560 76,104 -99,734 -23,630
Derivative contracts in hedge accounting -34,804 - -34,804 -93,724 - -93,724
Leased assets 10,177 - 10,177 6,366 - 6,366
Interest on non-financial other assets 6 - 6 8 - 8
Interest on assets 351,089 -126,045 225,044 188,005 -152,119 35,886
, of which interest income/expense according to the effective interest method 272,870 -38,380 189,660 -52,385
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
(EUR 1,000)
Jan–Dec 2022 Jan–Dec 2021
Interest and
similar income
Interest and
similar expense Net
Interest and
similar income
Interest and
similar expense Net
Liabilities
Amortised cost
Liabilities to credit institutions 11,575 -12,570 -995 20,118 -949 19,169
Liabilities to the public and public sector entities - -44,838 -44,838 - -51,503 -51,503
Debt securities issued 778 -263,148 -262,370 1,711 -219,984 -218,273
Subordinated liabilities - -4,049 -4,049 - -16,240 -16,240
Other liabilities - -4,282 -4,282 - -2,177 -2,177
Designated at fair value through profit or loss
Liabilities to credit institutions - -54 -54 - -30 -30
Liabilities to the public and public sector entities - -34,195 -34,195 - -32,726 -32,726
Debt securities issued - -157,748 -157,748 14 -78,466 -78,452
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 348,298 -139,384 208,915 293,688 -96,628 197,061
Derivative contracts in hedge accounting - 311,682 311,682 - 411,252 411,252
Interest on liabilities 360,651 -348,586 12,066 315,531 -87,452 228,079
, of which interest income/expense according to the effective interest method 12,355 -328,887 21,829 -290,854
Total interest income and expense 711,740 -474,631 237,109 503,536 -239,571 263,965
, of which interest income from leasing operations 10,177 6,366
Total interest income and expense excluding interest income from leasing operations 701,563 497,170
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Interest income on stage 3 financial assets in the expected
credit loss (ECL) calculations totalled EUR 743 thousand
(EUR 951 thousand) during the financial year. These are
included in the line items Loans and advances to the public
and public sector entities and Leased assets.
Interest expense on other liabilities includes EUR 47
thousand (EUR 66 thousand) of interest on lease liabilities
recognised in accordance with IFRS 16 Leases standard.
Interest expenses on financial assets at amortised cost on
cash and balances with central banks consists of interest
paid on central bank deposits and interest on loans and
advances to credit institutions of interest on cash collateral
receivables. Interest expenses on debt securities consists
of interest paid on short-term lending. Negative interest
arises on debt securities at fair value through fair value
reserve due to the premium / discount amortisation of debt
securities and commercial papers. Interest expenses on
derivative contracts at fair value through profit or loss consist
of negative interest income on derivative contracts that are
not included in hedge accounting. The derivative contracts
contained in this line item hedge financial assets which are
designated at fair value through profit or loss, derivative
contracts with municipalities and derivative contracts
hedging derivatives with municipalities, in addition to
derivative contracts used for hedging interest rate risk of the
balance sheet, for which no hedged item has been specified.
Derivative contracts in hedge accounting hedge line items
Loans and advances to the public and public sector entities
and Leased assets.
Interest income on financial liabilities at amortised cost
to credit institutions consists of interest received on cash
collateral liabilities as well as on TLTRO III debt and interest
income on debt securities issued consists of interest
received on ECPs. Interest income on derivative contracts at
fair value through profit or loss consists of positive interest
expense on derivatives that are not included in hedge
accounting. The derivatives contained in this line item hedge
financial liabilities which are designated at fair value through
profit or loss. Derivative contracts in hedge accounting are
used as hedges for line items Liabilities to credit institutions,
Liabilities to the public and public sector entities and Debt
securities issued.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 3. Net income from leasing operations
Note 4. Income from equity investments
(EUR 1,000) Jan–Dec 2022 Jan–Dec 2021
Leasing income 88,343 71,463
Depreciation on leased assets according to plan -78,590 -65,111
Capital gains on leased assets 425 15
Tot al 10,177 6,366
The Company has not received dividend income from its subsidiary in financial years 2022 and 2021.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 5. Commission income and expense
(EUR 1,000)
COMMISSION INCOME Jan–Dec 2022 Jan–Dec 2021
From other operations 870 978
Tot al 870 978
COMMISSION EXPENSE
Commission fees paid -269 -248
Other -5,245 -4,805
Tot al -5,514 -5,053
Net commission income -4,644 -4,075
In commission expense line item Other includes i.e. paid guarantee fees, custody fees and funding programme update costs.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 6. Net income from securities and foreign exchange transactions
Jan–Dec 2022 (EUR 1,000)
Capital gains and
losses (net)
Changes in
fair value Tot al
Derivative contracts at fair value through profit or loss 205 -304,568 -304,363
Designated at fair value through profit or loss - 313,783 313,783
Mandatorily at fair value through profit or loss - -976 -976
Day 1 gain or loss - -156 -156
Total net income from securities transactions 205 8,083 8,288
Net income from foreign exchange transactions -11,124 10,976 -148
Tot al -10,918 19,058 8,140
Jan–Dec 2021 (EUR 1,000)
Capital gains and
losses (net)
Changes in
fair value Tot al
Derivative contracts at fair value through profit or loss 910 -204,471 -203,560
Designated at fair value through profit or loss - 229,029 229,029
Mandatorily at fair value through profit or loss -23 -2,532 -2,554
Day 1 gain or loss - -208 -208
Total net income from securities transactions 888 21,819 22,707
Net income from foreign exchange transactions 53 1,336 1,388
Tot al 940 23,155 24,095
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 7. Financial assets and liabilities designated at fair value through profit or loss
FINANCIAL ASSETS AND LIABILITIES DESIGNATED
AT FAIR VALUE THROUGH PROFIT OR LOSS
(EUR 1,000)
Nominal value
31 Dec 2022
Carrying amount
31 Dec 2022
Nominal value
31 Dec 2021
Carrying amount
31 Dec 2021
Financial assets
Loans and advances to the public and public sector entities 30,000 28,432 30,000 38,941
Debt securities 3,355,906 3,162,034 3,484,223 3,539,074
Total financial assets * 3,385,906 3,190,465 3,514,223 3,578,015
Financial liabilities
Liabilities to credit institutions 5,000 3,291 5,000 4,787
Liabilities to the public and public sector entitities 1,495,567 1,318,658 1,445,202 1,548,394
Debt securities issued 11,505,250 10,842,676 10,680,831 10,008,299
Total financial liabilities 13,005,818 12,164,626 12,131,032 11,561,479
* Financial assets designated at fair value through profit or loss are exposed to credit risk up to the carrying amounts of those securities at 31 Dec 2022 and 31 Dec 2021.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
CHANGE IN FAIR VALUE OF FINANCIAL ASSETS DESIGNATED
AT FAIR VALUE THROUGH PROFIT OR LOSS
(EUR 1,000) 31 Dec 2022 1 Jan 2022
Fair value change
recognised in the
income statement
Jan–Dec 2022
, of which due
to credit risk
, of which due
to market risk
Financial assets
Loans and advances to the public and public sector entities -10,581 -769 -9,812 196 -10,008
Debt securities -215,498 20,226 -235,724 -9,088 -226,635
Total financial assets -226,078 19,457 -245,535 -8,892 -236,643
CHANGE IN FAIR VALUE OF FINANCIAL LIABILITIES DESIGNATED
AT FAIR VALUE THROUGH PROFIT OR LOSS
(EUR 1,000) 31 Dec 2022 1 Jan 2022
Fair value change
recognised in the
income statement
Jan–Dec 2022
Change in own credit
risk recognised
in the own credit
revaluation reserve
Jan–Dec 2022
Total fair value
change in
Jan–Dec 2022
Financial liabilities
Liabilities to credit institutions 1,708 187 1,521 -25 1,496
Liabilities to the public and public sector entitities 245,483 -152,113 397,597 -12,269 385,327
Debt securities issued 733,254 573,054 160,201 12,111 172,311
Total financial liabilities 980,445 421,127 559,318 -184 559,134
Financial assets that MuniFin has designated at fair value through profit or loss include debt
securities in the liquidity portfolio of which the interest rate risk is hedged with interest rate
and cross currency interest rate swaps. The designation is made as it significantly reduces
accounting mismatch which would otherwise arise from measuring the derivative contract
at fair value through profit or loss and the debt security at fair value through fair value reserve
based on the IFRS 9 business model. The Company does not have credit derivatives hedging
these financial assets.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
MuniFin has designated short-term debt instruments denominated in foreign currencies,
which have been hedged with FX swaps at fair value through profit or loss. The designation
reduces accounting mismatch which would otherwise arise between the measurement of the
derivative and financial liability. The financial liabilities designated at fair value through profit or
loss consist of financial liabilities, which have been hedged according to the Company’s risk
management policy, but which are not subject to IFRS 9 standard fair value hedge accounting.
The fair value changes of the financial liabilities impact the income statement, but as they have
been hedged, the expected profit or loss is restricted to interest. The table above describes the
net impact of these financial liabilities and their hedges on the income statement.
When a financial liability is designated at fair value through profit or loss, the fair value change,
with exception to MuniFin’s own credit risk that is presented as change of the Own credit
revaluation reserve, is presented in Net income from securities transactions.
MuniFin applies the income approach of IFRS 13 standard to the separation of fair value
changes related to changes in own credit risk from the fair value changes of the financial
liability. For the majority of financial liabilities designated at fair value through profit or loss,
no market price is available as there is no active secondary market. The methodology for
separation of own credit risk utilises MuniFin’s benchmark curves, cross currency basis
spreads and credit spreads of MuniFin’s issued debt securities on the primary market as
input. Based on the aforementioned inputs, valuation curves can be constructed for various
reporting periods for valuing financial liabilities designated at fair value through profit or loss.
By comparing fair values calculated using the trade date and reporting date, the impact of
change in own credit risk on the fair value of the financial liability can be determined.
Financial liabilities designated at fair value through profit or loss are not traded.
NET CHANGE IN FAIR VALUE IN NET INCOME FROM SECURITIES TRANSACTIONS
(EUR 1,000)
Cumulative change in fair value
31 Dec 2022
Fair value change recognised in
the income statement
Jan–Dec 2022
Financial liabilities designated at fair value through profit or loss 980,445 559,318
Derivative contracts at fair value through profit or loss hedging financial liabilities -989,771 -554,212
Net change in fair value -9,325 5,106
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
CHANGE IN FAIR VALUE OF FINANCIAL ASSETS DESIGNATED
AT FAIR VALUE THROUGH PROFIT OR LOSS
(EUR 1,000) 31 Dec 2021 1 Jan 2021
Fair value change
recognised in the
income statement
Jan–Dec 2021
, of which due
to credit risk
, of which due
to market risk
Financial assets
Loans and advances to the public and public sector entities -769 - -769 13 -782
Debt securities 20,226 69,859 -49,633 4,434 -54,067
Total financial assets 19,457 69,859 -50,402 4,446 -54,849
CHANGE IN FAIR VALUE OF FINANCIAL LIABILITIES DESIGNATED
AT FAIR VALUE THROUGH PROFIT OR LOSS
(EUR 1,000) 31 Dec 2021 1 Jan 2021
Fair value change
recognised in the
income statement
Jan–Dec 2021
Change in own credit
risk recognised
in the own credit
revaluation reserve
Jan–Dec 2021
Total fair value
change in
Jan–Dec 2021
Financial liabilities
Liabilities to credit institutions 187 418 -231 26 -205
Liabilities to the public and public sector entitities -152,113 -244,146 92,032 1,729 93,761
Debt securities issued 573,054 385,424 187,630 -1,356 186,274
Total financial liabilities 421,127 141,696 279,431 400 279,831
NET CHANGE IN FAIR VALUE IN NET INCOME FROM SECURITIES TRANSACTIONS
(EUR 1,000)
Cumulative change in fair value
31 Dec 2021
Fair value change recognised in
the income statement
Jan–Dec 2021
Financial liabilities designated at fair value through profit or loss 421,127 279,431
Derivative contracts at fair value through profit or loss hedging financial liabilities -435,559 -267,712
Net change in fair value -14,432 11,719
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 8. Net income on financial assets at fair value through fair value reserve
Note 9. Net income from hedge accounting
(EUR 1,000) Jan–Dec 2022 Jan–Dec 2021
Capital gains from financial assets - -
Capital losses from financial assets -149 -
Unrealised gains transferred from fair value reserve - -
Unrealised losses transferred from fair value reserve - -
Tot al -149 -
(EUR 1,000) Jan–Dec 2022 Jan–Dec 2021
Net income from hedging instruments -1,448,952 -474,604
Net income from hedged items 1,485,395 480,729
IBOR reform related compensations * - -1,302
Tot al 36,444 4,823
* Compensations relate to the IBOR reform of which more information is presented in the accounting policies of the Consolidated Financial Statements (Note 1) in Section 23. IBOR reform.
Unrealised gains and losses include fair value of the risks to which fair value hedge accounting is applied and which are measured at fair value. The foreign exchange difference of both hedging
instruments and hedged items are presented under item Net income from foreign exchange transactions in Note 6. A specification of the net income from hedge accounting is presented in Note 25.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 10. Impact of the reclassified financial assets and liabilities
RECLASSIFICATION OF FINANCIAL ASSETS
(EUR 1,000)
Original measurement
category under IAS 39
New measurement
category under IFRS 9
Fair value
31 Dec 2022
Fair value gain or loss
for the financial year *
EIR determined as at
1 Jan 2018 **
Interest revenue
recognised during
Jan–Dec 2022
Loans and advances to the public and public sector entities Fair value option Amortised cost 91,834 -983 0.14% 478
* The fair value gain or loss that would have been recognised in the income statement during the financial year if the financial assets had not been reclassified.
** Effective interest rate determined on the date of initial application.
RECLASSIFICATION OF FINANCIAL ASSETS
(EUR 1,000)
Original measurement
category under IAS 39
New measurement
category under IFRS 9
Fair value
31 Dec 2021
Fair value gain or loss
for the financial year
EIR determined as at
1 Jan 2018
Interest revenue
recognised during
Jan–Dec 2021
Loans and advances to the public and public sector entities Fair value option Amortised cost 99,253 -1,589 0.14% 422
The following table shows the impact of reclassification of financial assets in the implementation of IFRS 9 standard (as of 1 Jan 2018) from at fair value through profit or loss under IAS 39 standard
into amortised cost under IFRS 9 standard. MuniFin did not reclassify any financial liabilities from fair value through profit or loss into amortised cost in the implementation of IFRS 9 standard.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 11. Other operating income
Note 12. Depreciation and impairment on tangible and intangible assets
(EUR 1,000) Jan–Dec 2022 Jan–Dec 2021
Other income from credit institution operations 126 132
Tot al 126 132
(EUR 1,000) Jan–Dec 2022 Jan–Dec 2021
Depreciation
Depreciation on tangible assets -2,843 -2,826
Depreciation on intangible assets -2,894 -2,783
Total depreciation -5,737 -5,609
Impairment
Impairment on intangible assets * -4,562 -10,482
Total impairment -4,562 -10,482
Total depreciation and impairment -10,299 -16,091
* Line item includes a non-recurring item of EUR 4,562 thousand (EUR 10,482 thousand), which consists of impairment on a significant terminated IT system implementation.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 13. Other operating expenses
(EUR 1,000) Jan–Dec 2022 Jan–Dec 2021
Regulatory expenses
Contributions to the Single Resolution Fund -9,185 -6,737
Other administrative and supervisory fees -2,324 -2,352
Rental expenses -414 -133
External services -5,590 -4,368
Credit rating fees -748 -753
Audit fees * -503 -422
Insurances -897 -575
Other expenses from credit institution operations -172 -535
Tot al -19,833 -15,876
* Paid fees to the auditor (KPMG Oy Ab) in 2022 totalled EUR 503 thousand (EUR 422 thousand) for audit, EUR 28 thousand (EUR 21 thousand) for tax services and EUR 189 thousand
(EUR 181 thousand) for other services. Assigments as referred to in section 1, subsection 1, paragraph 2 of the Auditing Act in 2022 totalled EUR 16 thousand (EUR 0 thousand).
Audit and other fees paid to the audit firm are specified in Note 51.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 14. Credit losses and impairments on financial assets
MuniFin’s credit risks are described in the Consolidated Financial Statements’ Note 2 Risk management principles and the Group’s risk position in Section 7. Credit Risk. The accounting policies of
the expected credit loss calculations and impairment stages are described in the accounting policies of the Consolidated Financial Statements (Note 1) in Section 9. Impairment of financial assets.
CREDIT LOSSES AND IMPAIRMENTS
Jan–Dec 2022 (EUR 1,000)
Expected credit losses Realised credit losses
Additions Subtractions
Recognised
in the income
statement Additions Subtractions
Recognised
in the income
statement
Expected credit losses on financial assets at amortised cost
Cash and balances with central banks - 0 0 - - -
Loans and advances to credit institutions -88 62 -27 - - -
Loans and advances to the public and public sector entities -1,011 1,386 375 - - -
Leased assets * -29 2 -26 - - -
Debt securities -1 0 -1 - - -
Cash collateral to CCPs in Other assets -190 - -190 - - -
Credit commitments (off-balance sheet) -15 5 -10 - - -
Total expected credit losses on financial assets at amortised cost -1,335 1,455 120 - - -
Expected credit losses and impairments on other financial assets
Debt securities at fair value through fair value reserve -29 26 -3 - - -
Guarantee receivables from the public and public sector entities in Other assets - - - - - -
Total expected credit losses and impairments on other financial assets -29 26 -3 - - -
Tot al -1,364 1,481 118 - - -
* Expected credit losses on Leased assets include also the expected credit loss on assets not classified as financial assets according to IFRS 9 standard.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
CREDIT LOSSES AND IMPAIRMENTS
Jan–Dec 2021 (EUR 1,000)
Expected credit losses Realised credit losses
Additions Subtractions
Recognised
in the income
statement Additions Subtractions
Recognised
in the income
statement
Expected credit losses on financial assets at amortised cost
Cash and balances with central banks 0 0 0 - - -
Loans and advances to credit institutions -53 14 -39 - - -
Loans and advances to the public and public sector entities -713 655 -58 - - -
Leased assets 0 1 0 - - -
Debt securities 0 0 0 - - -
Cash collateral to CCPs in Other assets -9 0 -9 - - -
Credit commitments (off-balance sheet) -2 3 1 - - -
Total expected credit losses on financial assets at amortised cost -778 674 -105 - - -
Expected credit losses and impairments on other financial assets
Debt securities at fair value through fair value reserve -18 19 0 - - -
Guarantee receivables from the public and public sector entities in Other assets - - - - - -
Total expected credit losses and impairments on other financial assets -18 19 0 - - -
Tot al -797 692 -104 - - -
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 15. Information on business areas and geographical market
Municipality Finance Plc’s operating segment is credit institution operations and the market for lending is Finland.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 16. Financial assets and liabilities
Notes to the balance sheet
The Company has not combined any items on the balance sheet under Chapter 2, Section 14(4), of the Ministry of Finance Decree.
FINANCIAL ASSETS
31 Dec 2022 (EUR 1,000)
Amortised
cost
Fair value through
fair value reserve
Designated at
fair value through
profit or loss
Mandatorily at
fair value through
profit or loss
Fair value through
profit or loss Tota l Fair value
Cash and balances with central banks 2 - - - - 2 2
Loans and advances to credit institutions 9,624,470 - - - - 9,624,470 9,624,470
Loans and advances to the public and public sector entities 27,781,745 - 28,432 31,090 - 27,841,267 29,451,798
Leased assets * 274,053 - - - - 274,053 288,092
Debt securities 1,457,098 167,636 3,162,034 - - 4,786,768 4,786,383
Shares and participations - - - - - - -
Shares and participations in Group companies - - - 656 - 656 656
Derivative contracts at fair value through profit or loss - - - - 504,097 504,097 504,097
Derivative contracts in hedge accounting - - - - 2,203,006 2,203,006 2,203,006
Other assets ** 1,219,541 - - - - 1,219,541 1,219,541
Tot al 40,356,910 167,636 3,190,465 31,746 2,707,103 46,453,861 48,078,045
* Line item includes leased assets for which MuniFin applies fair value hedge accounting. Unhedged leased assets are not presented in this table of financial assets and liabilities as leased assets
are not regarded as financial assets under IFRS 9 standard (classification).
** Line item includes cash collateral given to central counterparties.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
FINANCIAL LIABILITIES
31 Dec 2022 (EUR 1,000) Amortised cost
Designated at fair value
through profit or loss
Fair value through
profit or loss Tot a l Fair value
Liabilities to credit institutions 2,329,332 3,291 - 2,332,623 2,332,609
Liabilities to the public and public sector entities 1,210,927 1,318,658 - 2,529,585 2,543,548
Debt securities issued 24,749,389 10,842,676 - 35,592,065 35,650,001
Derivative contracts at fair value through profit or loss - - 1,562,525 1,562,525 1,562,525
Derivative contracts in hedge accounting - - 3,053,586 3,053,586 3,053,586
Other liabilities * 573,969 - - 573,969 573,969
Subordinated liabilities - - - - -
Tot al 28,863,617 12,164,626 4,616,111 45,644,353 45,716,238
* Line item includes EUR 570,922 thousand of cash collateral received from central counterparties and EUR 3,046 thousand of lease liabilities in accordance with IFRS 16 standard.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
FINANCIAL ASSETS
31 Dec 2021 (EUR 1,000) Amortised cost
Fair value through fair
value reserve
Designated at
fair value through
profit or loss
Mandatorily at
fair value through
profit or loss
Fair value through
profit or loss Tota l Fair value
Cash and balances with central banks 8,399,045 - - - - 8,399,045 8,399,045
Loans and advances to credit institutions 1,416,564 - - - - 1,416,564 1,416,564
Loans and advances to the public and public sector entities 27,805,752 - 38,941 35,204 - 27,879,897 30,045,876
Leased assets 242,936 - - - - 242,936 255,907
Debt securities 1,088,888 213,466 3,539,074 - - 4,841,428 4,841,792
Shares and participations - - - - - - -
Shares and participations in Group companies - - - 656 - 656 656
Derivative contracts at fair value through profit or loss - - - - 761,023 761,023 761,023
Derivative contracts in hedge accounting - - - - 1,238,653 1,238,653 1,238,653
Other assets * 238,930 - - - - 238,930 238,930
Tot al 39,192,115 213,466 3,578,015 35,860 1,999,676 45,019,131 47,198,446
* Line item includes cash collateral given to central counterparties.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
FINANCIAL LIABILITIES
31 Dec 2021 (EUR 1,000) Amortised cost
Designated at fair value
through profit or loss
Fair value through
profit or loss Tot a l Fair value
Liabilities to credit institutions 2,796,230 4,787 - 2,801,016 2,800,913
Liabilities to the public and public sector entities 1,776,291 1,548,394 - 3,324,685 3,344,334
Debt securities issued 25,319,226 10,008,299 - 35,327,525 35,434,600
Derivative contracts at fair value through profit or loss - - 1,114,003 1,114,003 1,114,003
Derivative contracts in hedge accounting - - 1,110,291 1,110,291 1,110,291
Other liabilities * 337,526 - - 337,526 337,526
Subordinated liabilities 349,878 - - 349,878 354,683
Tot al 30,579,151 11,561,479 2,224,294 44,364,925 44,496,351
* Line item includes EUR 333,295 thousand of cash collateral received from central counterparties and EUR 4,231 thousand of lease liabilities in accordance with IFRS 16 standard.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 17. Cash and cash equivalents
Cash and cash equivalents include the following balance sheet items:
Cash and balances with central banks and Loans and advances to credit institutions payable on demand.
(EUR 1,000) 31 Dec 2022 31 Dec 2021
Cash and balances with central banks 2 8,399,045
Loans and advances to credit institutions payable on demand 47,604 35,712
Total cash and cash equivalents 47,606 8,434,757
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 18. Loans and advances to credit institutions
31 Dec 2022 (EUR 1,000) Payable on demand
Other than payable
on demand
Expected
credit losses Total
Receivables from central bank - 8,143,541 0 8,143,541
Domestic credit institutions 29,027 154,000 -47 182,979
Foreign credit institutions 18,578 1,279,434 -61 1,297,950
Tot al 47,604 9,576,975 -109 9,624,470
31 Dec 2021 (EUR 1,000) Payable on demand
Other than payable
on demand
Expected
credit losses Total
Receivables from central bank - 35,984 0 35,984
Domestic credit institutions 12,382 34,300 -8 46,674
Foreign credit institutions 23,330 1,310,650 -74 1,333,906
Tot al 35,712 1,380,934 -82 1,416,564
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 19. Loans and advances to the public and public sector entities
(EUR 1,000)
31 Dec 2022 31 Dec 2021
Tot a l
, of which expected
credit losses Total
, of which expected
credit losses
Enterprises and housing corporations 14,862,774 -595 14,675,547 -1,002
Public sector entities 12,635,898 -173 12,847,172 -88
Non-profit organisations 342,595 -3 357,179 -57
Tot al 27,841,267 -772 27,879,897 -1,147
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 20. Debt securities
DEBT SECURITIES ISSUED BY PUBLIC SECTOR ENTITIES
31 Dec 2022 (EUR 1,000) Publicly quoted Other To t al
Expected
credit losses *
Amortised cost - 1,246,325 1,246,325 -1
Municipal commercial papers - 1,246,325 1,246,325 -1
Fair value through fair value reserve 58,487 - 58,487 0
Bonds issued by other public sector entities 58,487 - 58,487 0
Designated at fair value through profit or loss 1,438,177 - 1,438,177 -
Government bonds 120,539 - 120,539 -
Bonds issued by other public sector entities 1,317,638 - 1,317,638 -
Tot al 1,496,664 1,246,325 2,742,990 -1
, of which eligible for central bank refinancing 1,286,322 - 1,286,322 0
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
DEBT SECURITIES ISSUED BY OTHER THAN PUBLIC SECTOR ENTITIES
31 Dec 2022 (EUR 1,000) Publicly quoted Other To t al
Expected
credit losses *
Amortised cost - 210,773 210,773 0
Commercial papers - 210,773 210,773 0
Fair value through fair value reserve 109,149 - 109,149 -44
Bank bonds 109,149 - 109,149 -44
Designated at fair value through profit or loss 1,723,856 - 1,723,856 -
Bank bonds 1,723,856 - 1,723,856 -
Tot al 1,833,005 210,773 2,043,778 -44
, of which eligible for central bank refinancing 1,603,853 - 1,603,853 -31
31 Dec 2022 (EUR 1,000) Publicly quoted Other To t al
Expected
credit losses *
Debt securities total 3,329,670 1,457,098 4,786,768 -45
* The expected credit losses have been recognised on debt securities, which have been
classified at fair value through fair value reserve. Therefore, the expected credit loss is not
recognised as a deduction from the gross carrying amount of the debt securities in the balance
sheet, but from fair value reserve as described in the accounting policies of the Consolidated
Financial Statements (Note 1) in Section 9.4 Presentation of allowance for ECL in the statement
of financial position.
At the financial statement date 31 Dec 2022, debt securities contain a security, notional value
of EUR 10,000 thousand, that is given as collateral for reverse repo agreement. In addition, the
Company has given debt securities as collateral to central counterparty, in total nominal value
of EUR 25,000 thousand.
At the financial statement date 31 Dec 2022, MuniFin has no debt securities measured
mandatorily at fair value through profit or loss.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
DEBT SECURITIES ISSUED BY PUBLIC SECTOR ENTITIES
31 Dec 2021 (EUR 1,000) Publicly quoted Other To ta l
Expected
credit losses
Amortised cost - 930,252 930,252 0
Municipal commercial papers - 930,252 930,252 0
Fair value through fair value reserve 74,959 - 74,959 -1
Bonds issued by other public sector entities 74,959 - 74,959 -1
Designated at fair value through profit or loss 1,703,953 - 1,703,953 -
Government bonds 180,437 - 180,437 -
Bonds issued by other public sector entities 1,523,516 - 1,523,516 -
Tot al 1,778,912 930,252 2,709,164 -1
, of which eligible for central bank refinancing 1,572,169 - 1,572,169 0
DEBT SECURITIES ISSUED BY OTHER THAN PUBLIC SECTOR ENTITIES
31 Dec 2021 (EUR 1,000) Publicly quoted Other To ta l
Expected
credit losses
Amortised cost - 158,636 158,636 0
Commercial papers - 158,636 158,636 0
Fair value through fair value reserve 138,506 - 138,506 -41
Bank bonds 138,506 - 138,506 -41
Designated at fair value through profit or loss 1,835,121 - 1,835,121 -
Bank bonds 1,835,121 - 1,835,121 -
Tot al 1,973,627 158,636 2,132,263 -41
, of which eligible for central bank refinancing 1,739,885 - 1,739,885 -30
31 Dec 2021 (EUR 1,000) Publicly quoted Other To ta l
Expected
credit losses
Debt securities total 3,752,539 1,088,888 4,841,428 -41
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 21. Leased assets
(EUR 1,000) 31 Dec 2022 31 Dec 2021
Prepayments 317,076 500,763
Machinery and equipment 252,030 267,337
Fixed assets and buildings 733,744 565,732
Other assets 274 315
Expected credit losses -28 -2
Tot al 1,303,094 1,334,146
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 22. Credit risks of financial assets and other commitments
MuniFin’s credit risks are described in the Consolidated Financial Statements’s Note 2 Risk management principles and the Group’s risk position in Section 7. Credit Risk. The expected credit loss
calculation method and impairment stages are described in the accounting policies of the Consolidated Financial Statements (Note 1) in Section 9. Impairment of financial assets.
The following table presents exposures under expected credit loss calculations by asset groups and impairment stages.
EXPOSURES BY ASSET GROUPS AND IMPAIRMENT STAGES
31 Dec 2022
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3 *
Gross carrying
amount
12-month
ECL
Gross carrying
amount
Lifetime
ECL
Gross carrying
amount
Lifetime
ECL
Gross carrying
amount
Expected
credit losses
Cash and balances with central banks at amortised cost 2 - - - - - 2 -
Loans and advances to credit institutions at amortised cost 9,624,470 -109 - - - - 9,624,470 -109
Loans and advances to the public and public sector entities at amortised cost 27,277,326 -89 497,729 -662 6,690 -21 27,781,745 -772
Leased assets at amortised cost 1,283,297 -6 19,655 -22 142 0 1,303,094 -28
Debt securities at amortised cost 1,457,098 -1 - - - - 1,457,098 -1
Debt securities at fair value through fair value reserve 167,636 -44 - - - - 167,636 -44
Cash collateral to CCPs in Other assets at amortised cost 1,219,541 -203 - - - - 1,219,541 -203
Guarantee receivables from the public and public sector entities in Other assets - - - - - - - -
Credit commitments (off-balance sheet) 2,447,573 -1 1 16,392 -2 - - 2,463,964 -14
Tot al 43,476,943 -464 533,776 -686 6,832 -21 44,017,551 -1,171
* MuniFin has collateral and guarantee arrangements that fully cover the stage 3 receivables as described in the Consolidated Financial Statements’ Note 2 Risk management principles and
the Group’s risk position in Section 7. Credit risk. MuniFin’s management expects that all the stage 3 receivables will be recovered and no final credit loss will emerge. Stage 3 receivables include
EUR 2,144 thousand (EUR 2,345 thousand) of originated credit impaired receivables (purchased or originated credit impaired, POCI). Expected credit losses for the POCI receivables amount to
EUR 8 thousand (EUR 7 thousand).
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPOSURES BY ASSET GROUPS AND IMPAIRMENT STAGES
31 Dec 2021
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
Gross carrying
amount
12-month
ECL
Gross carrying
amount
Lifetime
ECL
Gross carrying
amount
Lifetime
ECL
Gross carrying
amount
Expected
credit losses
Cash and balances with central banks at amortised cost 8,399,045 0 - - - - 8,399,045 0
Loans and advances to credit institutions at amortised cost 1,416,564 -82 - - - - 1,416,564 -82
Loans and advances to the public and public sector entities at amortised cost 27,457,506 -23 220,730 -578 127,517 -546 27,805,752 -1,147
Leased assets at amortised cost 1,333,987 -2 - - 159 - 1,334,146 -2
Debt securities at amortised cost 1,079,338 0 9,550 0 - - 1,088,888 0
Debt securities at fair value through fair value reserve 213,466 -41 - - - - 213,466 -41
Cash collateral to CCPs in Other assets at amortised cost 238,930 -13 - - - - 238,930 -13
Guarantee receivables from the public and public sector entities in Other assets 1,752 - - - - - 1,752 -
Credit commitments (off-balance sheet) 2,585,201 -4 3,167 0 4,506 0 2,592,873 -4
Tot al 42,725,787 -166 233,447 -578 132,182 -546 43,091,415 -1,289
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The following table presents a summary of total changes and reconciliation of expected credit losses by impairment stages during the financial year.
TOTAL EXPECTED CREDIT LOSSES BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2022 -166 -578 -546 -1,289 43,091,415
New assets originated or purchased -361 357 -1 -5 17,324,241
Assets derecognised or repaid (excluding write-offs) 95 7 77 179 -16,398,049
Transfers to Stage 1 -1 496 - 496 496
Transfers to Stage 2 1 -575 18 -556 -556
Transfers to Stage 3 0 - 0 0 0
Additional provision (Management overlay) - - 430 430 430
Changes to contractual cash flows due to modifications not resulting in derecognition - - - - -
Changes to models * and inputs ** used for ECL calculations -32 -394 0 -426 -425
Write-offs - - - - -
Recoveries - - - - -
Total 31 Dec 2022 -464 -686 -21 -1,171 44,017,551
* Represents changes in the model.
** Represents changes to model parameters (e.g. GDP rates, unemployment rates)
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
MuniFin finished ECL IT and model development during the second half of the year
2022. With the development, changes have been made to the assessment criteria for
significant increase in credit risk (SICR), and to the models of probability of default (PD)
and loss given default (LGD). In addition, macro scenarios were updated to take into
account forward-looking information at the end of financial year. Expected credit losses
increased by EUR 426 thousand due to the changes in models and parameters.
MuniFin recorded an additional discretionary provision (management overlay) at the
end of 2021 to take into account IT and model changes that will take place in 2022. The
amount of additional discretionary provision was increased at the end of June 2022. The
additional discretionary provision based on a group-specific assessment and decided
by MuniFin’s management was EUR 916 thousand. Since the IT and model development
were finished in the second half of the 2022, the additional discretionary provision
based on the group-specific assessment was removed. The addiotional provision
was recognised under the balance sheet item Loans and advances to the public and
public sector entities. The additional provision was not allocated to contract level.
MuniFin total credit risk has still remained low and the amount of ECL remains low.
Municipalities’ tax development was positive during 2022. The year 2023 is estimated to
be remarkably strong for the local government finances, despite the weakened economic
outlook, as the tax revenue-cutting effect of the health and social services reform will only
be seen in full impact on 2024. During 2022, the ongoing energy crisis, rising interest rates
and inflation have not yet had a significant effect on MuniFin’s customers’ ability to pay
or creditworthiness. MuniFin’s customer exposures have zero risk weight in the capital
adequacy calculation because they are from Finnish municipalities, joint municipal authorities
or wellbeing services counties, or involve a municipal, joint municipal authority or wellbeing
services county guarantee or a state deficiency guarantee supplementing the real estate
collateral as described in the Consolidated Financial Statements in Note 2 Risk management
principles and the Group’s risk position under Section 7. Credit risk. The management
estimates that all receivables will be recovered in full and therefore no final credit loss will
arise. On 31 December 2022, MuniFin had total of EUR 4 million (EUR 19 million) in guarantee
receivables from the public sector due to the insolvency of customers. Credit risk of the
liquidity portfolio has remained on a good quality level with the average rating of AA+ (AA+).
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
TOTAL EXPECTED CREDIT LOSSES BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2021 -126 -835 -224 -1,184 39,716,876
New assets originated or purchased -41 56 -13 3 9,637,333
Assets derecognised or repaid (excluding write-offs) 46 101 55 203 -6,262,486
Transfers to Stage 1 0 18 - 18 18
Transfers to Stage 2 0 -203 60 -143 -143
Transfers to Stage 3 0 1 -1 1 1
Additional provision (Management overlay) - 340 -430 -90 -90
Changes to contractual cash flows due to modifications not resulting in derecognition - - - - -
Changes to models and inputs used for ECL calculations -46 -56 6 -96 -94
Write-offs - - - - -
Recoveries - - - - -
Total 31 Dec 2021 -166 -578 -546 -1,289 43,091,415
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
In 2021, MuniFin made changes to macro scenarios and loss given default parameters in
expected credit loss calculations, which increased ECL by EUR 96 thousand. There were no
changes in the ECL model.
At the end of 2021, MuniFin recorded an additional discretionary provision (management
overlay) of EUR 430 thousand to take into account ECL model changes that will take place in
2022. The assessment of the need for additional provision was based on the fact that MuniFin’s
management estimated that due to the model changes, part of the exposures would transfer
to stage 2 in the expected credit loss calculations when ECL is calculated for the lifetime of the
contract instead of a 12-month ECL, or in some cases LGD would increase. In addition, model
changes were expected to have an effect on the amount of ECL in stage 3. Since the IT and
model development were finished in the second half of the 2022, the additional dicreationary
provision based on the group-specific assessment was removed in the financial year 2022.
The additional provision related to the balance sheet line item Loans and advances to the public
and public sector entities. The additional provision was not allocated to contract level.
The following tables present changes and reconciliation of expected credit losses by
impairment stages and asset groups during the financial year.
EXPECTED CREDIT LOSSES ON CASH AND BALANCES WITH CENTRAL BANKS AT
AMORTISED COST BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2022 0 - - 0 8,399,045
New assets originated or purchased - - - - -
Assets derecognised or repaid (excluding write-offs) 0 - - 0 -8,399,043
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations - - - - -
Total 31 Dec 2022 - - - - 2
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON LOANS AND ADVANCES TO CREDIT INSTITUTIONS
AT AMORTISED COST BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2022 -82 - - -82 1,416,564
New assets originated or purchased -85 - - -85 9,112,062
Assets derecognised or repaid (excluding write-offs) 62 - - 62 -904,152
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations -3 - - -3 -3
Total 31 Dec 2022 -109 - - -109 9,624,470
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON LOANS AND ADVANCES TO THE PUBLIC AND
PUBLIC SECTOR ENTITIES AT AMORTISED COST BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2022 -23 -578 -546 -1,147 27,805,752
New assets originated or purchased -42 357 -1 314 3,871,298
Assets derecognised or repaid (excluding write-offs) 2 4 77 84 -3,895,282
Transfers to Stage 1 -1 496 - 496 496
Transfers to Stage 2 0 -573 18 -554 -554
Transfers to Stage 3 0 - 0 0 0
Additional provision (Management overlay) - - 430 430 430
Changes to contractual cash flows due to modifications not resulting in derecognition - - - - -
Changes to models and inputs used for ECL calculations -25 -370 0 -395 -395
Write-offs - - - - -
Total 31 Dec 2022 -89 -662 -21 -772 27,781,745
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON LEASED ASSETS AT AMORTISED COST BY
IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2022 -2 - 0 -2 1,334,146
New assets originated or purchased -5 0 0 -5 242,148
Assets derecognised or repaid (excluding write-offs) 2 - - 2 -273,177
Transfers to Stage 1 - - - - -
Transfers to Stage 2 0 0 - 0 0
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations -2 -22 - -23 -23
Total 31 Dec 2022 -6 -22 0 -28 1,303,094
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON DEBT SECURITIES AT AMORTISED COST BY
IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2022 0 0 - 0 1,088,888
New assets originated or purchased -1 - - -1 1,457,098
Assets derecognised or repaid (excluding write-offs) 0 0 - 0 -1,088,888
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations - - - - -
Total 31 Dec 2022 -1 - - -1 1,457,098
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON DEBT SECURITIES AT FAIR VALUE THROUGH FAIR
VALUE RESERVE BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2022 -41 - - -41 213,466
New assets originated or purchased -28 - - -28 52,770
Assets derecognised or repaid (excluding write-offs) 26 - - 26 -98,599
Transfers to Stage 1 - - - -
Transfers to Stage 2 - - - -
Transfers to Stage 3 - - - -
Changes to models and inputs used for ECL calculations -1 - - -1
Total 31 Dec 2022 -44 - - -44 167,636
The loss allowance on debt instruments classified at fair value through fair value reserve is recognised in fair value reserve. The accumulated loss allowance is recognised to the profit or loss upon
derecognition of the assets. More details regarding the presentation of allowance for expected credit losses is presented in the accounting policies of the Consolidated Financial Statements (Note
1) in Section 9.4 Presentation of allowance for ECL in the statement of financial position.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON CASH COLLATERAL TO CCPS IN OTHER ASSETS
AT AMORTISED COST BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2022 -13 - - -13 238,930
New assets originated or purchased -190 - - -190 980,611
Assets derecognised or repaid (excluding write-offs) - - - - -
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations - - - - -
Total 31 Dec 2022 -203 - - -203 1,219,541
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON GUARANTEE RECEIVABLES FROM THE PUBLIC
AND PUBLIC SECTOR ENTITIES IN OTHER ASSETS BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2022 - - - - 1,751,603
New assets originated or purchased - - - - -
Assets derecognised or repaid (excluding write-offs) - - - - -1,751,603
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations - - - - -
Recoveries - - - - -
Total 31 Dec 2022 - - - - -
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON CREDIT COMMITMENTS (OFF-BALANCE SHEET)
BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2022 -4 0 0 -4 2,592,873
New assets originated or purchased -9 0 - -9 1,608,254
Assets derecognised or repaid (excluding write-offs) 3 2 0 5 -1,737,157
Transfers to Stage 1 - - - -
Transfers to Stage 2 0 -2 - -2
Transfers to Stage 3 - - - -
Changes to models and inputs used for ECL calculations -1 -2 - -4
Total 31 Dec 2022 -11 -2 - -14 2,463,964
The loss allowance on binding credit commitments is recognised under Other liabilities. More details regarding the presentation of allowance for expected credit losses is presented in the
accounting policies of the Consolidated Financial Statements (Note 1) in Section 9.4 Presentation of allowance for ECL in the statement of financial position.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON CASH AND BALANCES WITH CENTRAL BANKS AT
AMORTISED COST BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2021 0 - - 0 5,565,801
New assets originated or purchased 0 - - 0 2,833,244
Assets derecognised or repaid (excluding write-offs) 0 - - 0 0
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations - - - - -
Total 31 Dec 2021 0 - - 0 8,399,045
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON LOANS AND ADVANCES TO CREDIT INSTITUTIONS
AT AMORTISED COST BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2021 -43 - - -43 1,840,980
New assets originated or purchased -1 0 - - -10 353,939
Assets derecognised or repaid (excluding write-offs) 14 - - 14 -778,312
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations -43 - - -43 -43
Total 31 Dec 2021 -82 - - -82 1,416,564
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON LOANS AND ADVANCES TO THE PUBLIC AND
PUBLIC SECTOR ENTITIES AT AMORTISED COST BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2021 -30 -835 -224 -1,089 26,886,947
New assets originated or purchased -11 56 -13 33 3,238,833
Assets derecognised or repaid (excluding write-offs) 10 101 55 167 -2,319,771
Transfers to Stage 1 0 18 - 18 18
Transfers to Stage 2 0 -203 60 -143 -143
Transfers to Stage 3 - 1 -1 1 1
Additional provision (Management overlay) - 340 -430 -90 -90
Changes to contractual cash flows due to modifications not resulting in derecognition - - - - -
Changes to models and inputs used for ECL calculations 7 -56 6 -44 -44
Write-offs - - - - -
Total 31 Dec 2021 -23 -578 -546 -1,147 27,805,752
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON LEASED ASSETS AT AMORTISED COSTBY
IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2021 -2 0 0 -2 1,090,940
New assets originated or purchased 0 - - 0 310,062
Assets derecognised or repaid (excluding write-offs) 0 - 0 0 -66,857
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations 1 - 0 1 1
Total 31 Dec 2021 -2 0 0 -2 1,334,146
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON DEBT SECURITIES AT AMORTISED COST BY
IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2021 0 0 - 0 1,310,305
New assets originated or purchased 0 0 - 0 1,088,888
Assets derecognised or repaid (excluding write-offs) 0 0 - 0 -1,310,305
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations - - - - -
Total 31 Dec 2021 0 0 - 0 1,088,888
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON DEBT SECURITIES AT FAIR VALUE THROUGH FAIR
VALUE RESERVE BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2021 -42 - - -42 423,050
New assets originated or purchased -1 6 - - -16 28,176
Assets derecognised or repaid (excluding write-offs) 19 - - 19 -237,760
Transfers to Stage 1 - - - -
Transfers to Stage 2 - - - -
Transfers to Stage 3 - - - -
Changes to models and inputs used for ECL calculations -2 - - -2
Total 31 Dec 2021 -41 - - -41 213,466
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON CASH COLLATERAL TO CCPS IN OTHER ASSETS
AT AMORTISED COST BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2021 -4 - - -4 243,269
New assets originated or purchased -1 - - -1 22,942
Assets derecognised or repaid (excluding write-offs) 0 - - 0 -27,272
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations -8 - - -8 -8
Total 31 Dec 2021 -13 - - -13 238,930
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON GUARANTEE RECEIVABLES FROM THE PUBLIC
AND PUBLIC SECTOR ENTITIES IN OTHER ASSETS BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2021 - - - - 1,606
New assets originated or purchased - - - - 145
Assets derecognised or repaid (excluding write-offs) - - - - -
Transfers to Stage 1 - - - - -
Transfers to Stage 2 - - - - -
Transfers to Stage 3 - - - - -
Changes to models and inputs used for ECL calculations - - - - -
Recoveries - - - - -
Total 31 Dec 2021 - - - - 1,752
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EXPECTED CREDIT LOSSES ON CREDIT COMMITMENTS (OFF-BALANCE SHEET)
BY IMPAIRMENT STAGES
(EUR 1,000)
Not credit-impaired Credit-impaired
Tot a l
Stage 1 Stage 2 Stage 3
12-month ECL Lifetime ECL Lifetime ECL ECL
Gross carrying
amount
Opening balance 1 Jan 2021 -4 0 0 -4 2,353,978
New assets originated or purchased -2 0 - -2 1,761,104
Assets derecognised or repaid (excluding write-offs) 3 - 0 3 -1,522,209
Transfers to Stage 1 - - - -
Transfers to Stage 2 - - - -
Transfers to Stage 3 - 0 0 0
Changes to models and inputs used for ECL calculations 0 - 0 0
Total 31 Dec 2021 -4 0 0 -4 2,592,873
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Forward-looking information
In the assessment of whether the credit risk of an instrument
has significantly increased (SICR) and in the measurement
of expected credit losses, forward-looking information
and macroeconomic scenarios are included in the model.
These macroeconomic projections cover a period of 3 years
and as no reliable macroeconomic projections exceeding
a three-year time horizon are available, forward-looking
adjustment will be limited to a three-year period. Mainly
three scenarios are used; base, optimistic and adverse.
Scenarios include probability weights. The scenario
probability weightings are described in the adjacent table.
SCENARIO
31 Dec 2022 31 Dec 2021
2023 2024 2025 2022 2023 2024
Adverse 30% 30% 30% 40% 40% 40%
Base 60% 60% 60% 50% 50% 40%
Optimistic 10% 10% 10% 10% 10% 20%
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
MuniFin has identified key drivers of credit losses for each
portfolio that share similar kinds of credit risk characteristics
and estimated the relationship between macroeconomic
variables and credit losses. The ECL model consists
of the following macroeconomic variables for Finnish
counterparties of financial assets: Finnish government
long-term interest rate, the development of residential
housing prices and unemployment rate. For non-Finnish
financial assets, stress test scenarios published by the
European Central Bank are employed in the model and
scenario parameters. Each variable covers an estimate over
a period of three years. The adjacent table presents the
macroeconomic variables and their forecasts over the three-
year forecast period.
MACROECONOMIC VARIABLES Scenario
31 Dec 2022 31 Dec 2021
2023 2024 2025 2022 2023 2024
10Y Fin Government rate, %
Adverse 4.0 3.6 3.4 1.2 0.5 0.3
Base 3.2 3.1 3.2 0.3 0.6 0.8
Optimistic 2.2 1.9 1.8 0.8 1.1 1.2
Residential Real Estate
(selling price, YoY change), %
Adverse -13.0 0.0 2.0 -8.0 -7.0 -2.0
Base -2.0 2.0 1.5 -2.0 -3.0 -1.4
Optimistic 0.0 3.0 2.5 3.5 3.0 1.5
Unemployment rate, %
Adverse 9.5 9.0 8.5 8.7 9.2 8.5
Base 7.4 7.3 6.8 6.9 6.5 6.3
Optimistic 6.5 6.0 5.8 6.5 6.0 5.8
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The Russian invasion of Ukraine has fundamentally changed the outlook of the Finnish
economy. Not only has consumer confidence weakened, but business expectations have also
taken a clear downward turn. Despite the challenging outlook, however, the Finnish economy
is facing the future from a better position than it did when the COVID-19 pandemic hit. The
service sector has revitalised after COVID restrictions were lifted, and employment rate is still
at its highest level since early 1990’s. The growth outlook is nevertheless bound to deteriorate
because of rising living costs and rapidly tightening monetary policy. MuniFin Group expects
output to contract 0.5% in 2023. From 2024 onwards, the economy will gradually converge
back to its long-term growth path and the annual pace of expansion is around 1.5%. Unemploy-
ment is expected to rise above 7% in 2023–2024. Unemployment rate returns to a moderately
declining trend from 2025 onwards. In the near term, high energy and food prices continue to
contribute to inflationary pressures. In the base scenario, Finnish consumer prices rise 6.7%
in 2022. Annual CPI inflation is expected to decline to 4.0% in 2023 and stabilise around 2% in
2024–2026. To make sure that future inflation expectations remain well anchored, the Euro-
pean Central Bank (ECB) is expected to continue raising interest rates in the first half of 2023.
The pace of monetary tightening slows down, however, as cost pressures gradually ease off.
On the national level, higher interest rates mitigate households’ home buying intentions. Home
prices cease to rise in 2022 and they are expected to contract 2.0% in 2023. For the rest of the
projection period, the annual increase in home prices is expected to settle around 1.5–2.0%.
Compared to the base scenario, MuniFin Group’s upside (optimistic) scenario factors in the
economic impact of the war in Ukraine to be less severe and inflationary pressures to ease
somewhat quicker. As a result, the Finnish GDP would grow faster in the subsequent two years
(1.0% in 2023 and 2.5% in 2024). In the upside scenario, unemployment rate continues its slow
decline during the whole projection period. Consumer price inflation accelerates to 6.0% in
2022 but cools down back to 2.5% already in 2023. Despite rising interest rates, relatively
steady housing demand prevents home prices from contracting in 2023. Thereafter, consumer
and home prices rise at about 2.0–3.0% pace in 2024–2026. As inflation starts declining
sooner, in the optimistic scenario the ECB raises interest rates less in 2023 than in the base
scenario. As a result, market interest rates also rise more slowly.
MuniFin Group’s downside (adverse) scenario represents a deeply stagflationary outcome
where the war in Ukraine leads to more persistent inflation and a contracting real economy.
Economic recession continues well into 2024. Unemployment rises more and remains high
much longer than in the base scenario. Rising energy and food prices trigger a wage inflation
spiral, making it harder for the the ECB to get future inflation expectations under control.
The ECB is forced to raise interest rates much higher than in the base case, deepening the
contraction in GDP. CPI inflation remains well above ECB’s target through 2024. Lack of
demand in the housing market leads to a sharp decline in home prices. Prolonged global
recession creates tensions in financial markets, giving rise to wider risk premia in asset pricing.
The following table presents the sensitivity of the expected credit losses to the forward-
looking information assuming 100% weight for the adverse scenario until 2024 (2023).
SENSITIVITY ANALYSIS
(EUR 1,000)
31 Dec 2022 31 Dec 2021
Weighted
scenario
Adverse
scenario
(100%)
Weighted
scenario
Adverse
scenario
(100%)
ECL 1,171 1,547 859 1,150
Proportion of the exposure in
Stage 2 and 3 1.27% 2.57% 0.86% 1.15%
The sensitivity analysis does not include the additional discretionary provisions
(management overlay).
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Forbearance measures are concessions to original contractual payment terms agreed at the
customers’ initiative to help the customer through temporary payment difficulties. Performing
forborne exposures include forborne exposures reclassified as performing during their
probation period or forbearance measures made into a performing loan. Loan modifications
due to reasons other than the customer’s financial difficulties are not classified as forborne
exposures. MuniFin considers a loan forborne when such concessions or modifications are
provided as a result of the borrower’s present or expected financial difficulties and MuniFin
would not have agreed to them if the borrower had been financially healthy.
The COVID-19 pandemic affected the financial situation and liquidity of MuniFin’s customers.
The Company therefore offered concessions to the payment terms of loans to those
customers whose finances had been temporarily affected by the pandemic. Only a few
individual repayment holidays have been extended during 2022 and 2021. The uncollected
installments were mainly transferred to the end of the loan term to be paid in connection with
the last installment. No lease concessions were granted to MuniFin’s leasing customers.
Realised credit losses
MuniFin has not had any final realised credit losses during the financial year or the comparison
year.
Non-performing and forborne exposures
Non-performing and forborne exposures refer to receivables that are more than 90 days past due, other receivables classified as risky and forborne exposures due to the customer’s financial
difficulties.
NON-PERFORMING AND FORBORNE EXPOSURES
31 Dec 2022 (EUR 1,000) Performing exposures
Non-performing
exposures Total exposures
Total expected
credit losses
Total exposures
(net)
Over 90 days past due - 4,087 4,087 -13 4,074
Unlikely to be paid - 509 509 0 509
Forborne exposures 77,268 2,513 79,780 -478 79,303
Tot a l 77,268 7,110 84,377 -491 83,886
NON-PERFORMING AND FORBORNE EXPOSURES
31 Dec 2021 (EUR 1,000) Performing exposures
Non-performing
exposures Total exposures
Total expected
credit losses
Total exposures
(net)
Over 90 days past due - 16,813 16,813 -82 16,731
Unlikely to be paid - 85,559 85,559 -8 85,551
Forborne exposures 61,862 25,849 87,711 -238 87,473
Tot a l 61,862 128,221 190,083 -328 189,755
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 23. Shares and participations
31 Dec 2022 (EUR 1,000) Publicly quoted Other Tot al , of which in credit institutions
Mandatorily at fair value through profit or loss - - - -
Shares and participations in Group companies - 656 656 -
Tot al - 656 656 -
, of which at acquisition cost - 656 656 -
MuniFin does not have equity instruments valued at fair value through fair value reserve. MuniFin does not have shares and participations subject to securities lending.
31 Dec 2021 (EUR 1,000) Publicly quoted Other Tot a l , of which in credit institutions
Mandatorily at fair value through profit or loss - - - -
Shares and participations in Group companies - 656 656 -
Tot al - 656 656 -
, of which at acquisition cost - 656 656 -
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 24. Derivative contracts
31 Dec 2022 (EUR 1,000)
Nominal value of underlying instrument Fair value
Remaining maturity
Less than 1 year 1–5 years Over 5 years Tota l Positive Negative
Derivative contracts in hedge accounting
Interest rate derivatives
Interest rate swaps 3,087,053 10,930,604 19,669,762 33,687,419 1,608,625 -2,279,032
, of which cleared by the central counterparty 2,897,220 10,592,658 18,932,859 32,422,737 1,546,169 -2,240,748
Currency derivatives
Cross currency interest rate swaps 3,853,324 8,258,495 455,462 12,567,281 594,381 -774,553
Total derivative contracts in hedge accounting 6,940,378 19,189,099 20,125,224 46,254,701 2,203,006 -3,053,586
Derivative contracts at fair value through profit or loss
Interest rate derivatives
Interest rate swaps 5,726,233 8,177,909 4,368,751 18,272,893 411,500 -1,084,554
, of which cleared by the central counterparty 4,157,199 5,759,356 1,501,085 11,417,640 320,535 -7,895
Interest rate options 40,000 - - 40,000 94 -94
Currency derivatives
Cross currency interest rate swaps 1,200,762 2,704,383 78,336 3,983,481 81,658 -226,389
Forward exchange contracts 4,591,665 - - 4,591,665 10,848 -147,174
Equity derivatives 732,900 - - 732,900 -2 -104,314
Total derivative contracts at fair value through profit or loss 12,291,560 10,882,292 4,447,087 27,620,939 504,097 -1,562,525
Total derivative contracts 19,231,938 30,071,391 24,572,311 73,875,640 2,707,103 -4,616,111
Derivative contracts at fair value through profit or loss contain all derivatives of the Company which are not included in hedge accounting, even if they are entered into for risk management
purposes. The category contains derivative contracts used for hedging financial assets and liabilities designated at fair value through profit or loss, all derivative contracts with municipalities and
all derivative contracts hedging derivatives with municipalities. In addition to these, the category contains derivative contracts used for hedging interest rate risk of the balance sheet, for which no
hedged item has been specified.
Interest received or paid from derivative contracts is included in the balance sheet line items Accrued income and prepayments and Accrued expenses and deferred income.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
31 Dec 2021 (EUR 1,000)
Nominal value of underlying instrument Fair value
Remaining maturity
Less than 1 year 1–5 years Over 5 years Tota l Positive Negative
Derivative contracts in hedge accounting
Interest rate derivatives
Interest rate swaps 2,409,728 12,470,328 17,727,331 32,607,387 756,203 -384,289
, of which cleared by the central counterparty 2,233,780 11,834,195 16,946,320 31,014,295 682,416 -308,205
Currency derivatives
Cross currency interest rate swaps 3,437,953 8,396,354 782,448 12,616,756 482,450 -726,003
Total derivative contracts in hedge accounting 5,847,682 20,866,681 18,509,780 45,224,143 1,238,653 -1,110,291
Derivative contracts at fair value through profit or loss
Interest rate derivatives
Interest rate swaps 3,940,682 8,043,879 4,491,216 16,475,777 475,940 -357,092
, of which cleared by the central counterparty 2,864,097 5,372,343 1,578,144 9,814,584 46,821 -163,327
Interest rate options - 40,000 - 40,000 101 -1 01
Currency derivatives
Cross currency interest rate swaps 2,467,039 1,940,380 109,367 4,516,786 133,656 -718,888
Forward exchange contracts 3,354,738 - - 3,354,738 150,723 -
Equity derivatives 816,109 - - 816,109 604 -37,922
Total derivative contracts at fair value through profit or loss 10,578,567 10,024,259 4,600,583 25,203,409 761,023 -1,114,003
Total derivative contracts 16,426,249 30,890,940 23,110,363 70,427,552 1,999,676 -2,224,294
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 25. Hedge accounting
HEDGE ACCOUNTING
31 Dec 2022 (EUR 1,000) Nominal value
Fair value hedge
accounting total
IAS 39 portfolio
hedge accounting
IFRS 9 fair value
hedge accounting
IFRS 9 fair value
hedge accounting
incl. Cost-of-Hedging
Assets
Loans and advances to the public and public sector entities 12,826,877 11,348,612 11,289,353 59,259 -
Leased assets 302,864 274,053 - 274,053 -
Total assets 13,129,741 11,622,665 11,289,353 333,313 -
Liabilities
Liabilities to credit institutions 95,000 84,892 - 84,892 -
Liabilities to the public and public sector entities 1,302,710 1,210,927 - 1,210,927 -
Debt securities issued 27,163,444 24,419,692 - 12,603,372 11,816,320
Total liabilities 28,561,154 25,715,510 - 13,899,190 11,816,320
The interest rate and foreign exchange rate risk of the Company are managed by entering into
derivative transactions. According to the Market Risk Policy, the Company’s hedging strategy
is mainly to hedge all material foreign exchange and interest rate risks of financial assets and
liabilities with maturities exceeding one year. As a result, foreign currency denominated items
are translated into euros, fixed rate and long-term reference rates are swapped to floating
interest rates with shorter terms. The risk management principles related to the Company’s
hedging of market risk are described in more detail in the Consolidated Financial Statements’s
Note 2 Risk Management principles and the Group’s risk position.
The Company applies both fair value hedge accounting according to IFRS 9 standard and fair
value portfolio hedge accounting according to IAS 39 standard. The Company does not apply
cash flow hedge accounting. Accounting policies related to hedge accounting are described in
the accounting polices of the Consolidated Financial Statements (Note 1) in Section 10. Hedge
accounting.
In the following table, the hedged assets and liabilities are presented according to balance
sheet line items divided into IAS 39 standard portfolio hedge accounting and IFRS 9 standard
fair value hedge accounting, which is further subdivided into whether hedging is subject to the
separation of the Cost-of-Hedging.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The figures presented in the adjacent table contain the
cumulative fair value change at the beginning and end of
the financial year, in addition to the fair value change of the
hedged risk and the hedging instrument during the financial
year. The figures presented in the table do not include the
change in fair value due to foreign exchange differences
of hedging instruments and the hedged items, which are
recognised in the income statement under Net income from
securities and foreign exchange transactions. Due to the
above mentioned reason, the total amount of the hedging
instruments does not correspond to the fair value presented
in Note 24 Derivative contracts on line Total derivative
contracts in hedge accounting. The fair value changes of
the hedged risk of the hedged items and all other fair value
changes of the hedging instruments are recognised in the
income statement under Net income from hedge accounting.
The ineffective portion of the hedging relationship is thus
shown on this line in the income statement. Net income from
securities and foreign exchange transactions is specified in
Note 6 and net income from hedge accounting in Note 9.
In accordance with the market practice and IFRS 13 Fair value
measurement standard, MuniFin discounts hedged items
with the swap curve and the hedging derivatives with the OIS
curve, which causes a significant part of the MuniFin’s hedge
ineffectiveness. In addition, ineffectiveness may also arise to
some extent from differences in notional, day count methods
or timing of the cash flows.
VALUE OF HEDGED RISK
(EUR 1,000) 31 Dec 2022 1 Jan 2022
Recognised in the
income statement
Jan–Dec 2022
Assets
IAS 39 portfolio hedge accounting
Loans and advances to the public and public sector entities -1,476,553 122,505 -1,599,058
Derivative contracts in hedge accounting 1,549,315 -78,911 1,628,226
Accumulated fair value accrual from the termination of hedge accounting -1,721 218 -1,939
IAS 39 portfolio hedge accounting, net 71,041 43,812 27,229
IFRS 9 fair value hedge accounting
Loans and advances to the public and public sector entities -595 25,908 -26,503
Leased assets -28,808 -495 -28,313
Derivative contracts in hedge accounting 28,548 -25,669 54,217
IFRS 9 fair value hedge accounting, net -855 -255 -599
Liabilities
IFRS 9 fair value hedge accounting
Liabilities to credit institutions 10,108 -5,120 15,228
Liabilities to the public and public sector entities 54,570 -340,433 395,003
Debt securities issued 2,559,950 -171,028 2,730,978
Derivative contracts in hedge accounting -2,631,089 500,306 -3,131,395
IFRS 9 fair value hedge accounting, net -6,461 -16,275 9,814
IBOR reform related compensations * -3,343 -3,343 0
Total hedge accounting 60,382 23,938 36,444
* Compensations relate to the IBOR reform of which more information is presented in the accounting policies of the
Consolidated Financial Statements (Note 1) in Section 23. IBOR reform.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The adjacent table presents the impact of Cost-of-Hedging
of cross currency derivatives on equity in the Cost-of-
Hedging reserve. The figures are presented net of deferred
taxes. For all foreign currency hedge relationships, MuniFin
has elected to utilise Cost-of-Hedging. For each hedge
relationship, when the cross currency swap is designated
as a hedging instrument, the cross currency basis spread is
separated and excluded from the designation and accounted
for as Cost-of-Hedging. The difference between the changes
in fair value of the actual derivative and the designated
portion of the derivative are recorded as Cost-of-Hedging
to the Cost-of-Hedging reserve. Thus, changes in cross
currency basis spreads do not create ineffectiveness in the
hedge relationship.
HEDGING IMPACT ON EQUITY
(EUR 1,000) 31 Dec 2022 1 Jan 2022
Impact on
Cost-of-Hedging reserve
Cost-of-Hedging
Derivative contracts in hedge accounting 1,488 13,621 -12,133
Tot al 1,488 13,621 -12,133
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The following table presents the cumulative effectiveness of hedge accounting by hedged items. In addition, the table shows the hedging instruments used.
EFFECTIVENESS OF HEDGE ACCOUNTING
31 Dec 2022 (EUR 1,000)
Gains/losses attributable to the hedged risk
Hedge
ineffectivenessHedged item Hedging instruments Hedged items Hedging instruments
Assets
IAS 39 portfolio hedge accounting
Fixed rate and revisable rate loans Interest rate derivatives -1,476,553 1,549,315 72,762
IFRS 9 fair value hedge accounting
Structured lending Interest rate derivatives -595 1,043 449
Fixed rate and revisable rate leased assets Interest rate derivatives -28,808 27,504 -1,304
Assets total -1,505,955 1,577,862 71,907
Liabilities
IFRS 9 fair value hedge accounting
Financial liabilities denominated in EUR Interest rate derivatives 1,967,231 -1,972,437 -5,207
Financial liabilities denominated in foreign currencies
Currency derivatives (cross
currency interest rate swaps)
Interest rate derivatives 657,397 -658,652 -1,255
Liabilities total 2,624,628 -2,631,089 -6,461
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
HEDGE ACCOUNTING
31 Dec 2021 (EUR 1,000) Nominal value
Fair value hedge
accounting total
IAS 39 portfolio
hedge accounting
IFRS 9 fair value
hedge accounting
IFRS 9 fair value
hedge accounting
incl. Cost-of-hedging
Assets
Loans and advances to the public and public sector entities 12,577,902 12,725,453 12,598,775 126,678 -
Leased assets 243,432 242,936 - 242,936 -
Total assets 12,821,333 12,968,390 12,598,775 369,615 -
Liabilities
Liabilities to credit institutions 50,000 55,120 - 55,120 -
Liabilities to the public and public sector entities 1,504,060 1,776,291 - 1,737,750 38,541
Debt securities issued 24,714,983 24,852,845 - 12,207,796 12,645,049
Total liabilities 26,269,043 26,684,256 - 14,000,666 12,683,589
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
VALUE OF HEDGED RISK
(EUR 1,000) 31 Dec 2021 1 Jan 2021
Recognised in the income
statement Jan–Dec 2021
Assets
IAS 39 portfolio hedge accounting
Loans and advances to the public and public sector entities 122,505 464,688 -342,182
Derivative contracts in hedge accounting -78,911 -428,083 349,171
Accumulated fair value accrual from the termination of hedge accounting 218 47 170
IAS 39 portfolio hedge accounting, net 43,812 36,653 7,159
IFRS 9 fair value hedge accounting
Loans and advances to the public and public sector entities 25,908 37,203 -11,294
Leased assets -495 4,221 -4,716
Derivative contracts in hedge accounting -25,669 -42,044 16,375
IFRS 9 fair value hedge accounting, net -255 -620 365
Liabilities
IFRS 9 fair value hedge accounting
Liabilities to credit institutions -5,120 -13,800 8,681
Liabilities to the public and public sector entities -340,433 -481,546 141,113
Debt securities issued -171,028 -859,986 688,958
Derivative contracts in hedge accounting 500,306 1,340,456 -840,150
IFRS 9 fair value hedge accounting, net -16,275 -14,876 -1,399
IBOR reform related compensations -3,343 -2,041 -1,302
Total hedge accounting 23,938 19,115 4,823
HEDGING IMPACT ON EQUITY
(EUR 1,000) 31 Dec 2021 1 Jan 2021
Impact on
Cost-of-Hedging reserve
Cost-of-Hedging
Derivative contracts in hedge accounting 13,621 15,624 -2,004
Tot al 13,621 15,624 -2,004
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
EFFECTIVENESS OF HEDGE ACCOUNTING
31 Dec 2021 (EUR 1,000)
Gains/losses attributable to the hedged risk
Hedge
ineffectivenessHedged item Hedging instruments Hedged items Hedging instruments
Assets
IAS 39 portfolio hedge accounting
Fixed rate and revisable rate loans Interest rate derivatives 122,505 -78,911 43,594
IFRS 9 fair value hedge accounting
Structured lending Interest rate derivatives 25,908 -25,880 28
Fixed rate and revisable rate leased assets Interest rate derivatives -495 211 -283
Assets total 147,919 -104,580 43,339
Liabilities
IFRS 9 fair value hedge accounting
Financial liabilities denominated in EUR Interest rate derivatives -435,365 426,733 -8,633
Financial liabilities denominated in foreign currencies
Currency derivatives (cross
currency interest rate swaps)
Interest rate derivatives -81,215 73,573 -7,642
Liabilities total -516,581 500,306 -16,275
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 26. Intangible assets
Note 27. Tangible assets
(EUR 1,000) 31 Dec 2022 31 Dec 2021
IT systems 8,831 12,296
Other intangible assets 5 9
Tot al 8,837 12,305
Intangible assets do not include other development costs or goodwill.
(EUR 1,000) 31 Dec 2022 31 Dec 2021
Real estate corporation shares 299 299
Right-of-use assets 2,980 4,151
Other tangible assets 1,557 2,738
Tot al 4,835 7,188
MuniFin does not have investment properties.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 28. Changes in intangible and tangible assets during the financial year
2022 (EUR 1,000)
Intangible assets Tangible assets
Tot a l Real estate Other tangible assets Right-of-use assets To t al
Acquisition cost 1 Jan 41,401 299 6,999 8,743 16,041
+ Additions 3,988 - 16 564 579
- Disposals -15,755 - -1,371 -132 -1,503
Acquisition cost 31 Dec 29,634 299 5,644 9,174 15,117
Accumulated depreciation and impairment charges 1 Jan 29,097 - 4,261 4,592 8,853
- Accumulated depreciation on disposals -710 - -1,302 -113 -1,415
+ Depreciation according to plan 2,894 - 1,128 1,715 2,843
+/- Impairment and reversals* -10,482 - - - -
Accumulated depreciation and impairment charges 31 Dec 20,798 - 4,087 6,195 10,282
Carrying amount 31 Dec 8,837 299 1,557 2,980 4,835
* The line item includes a non-recurring item of impairment change of EUR -10,482 thousand on MuniFin’s significant terminated IT system implementation during the review period.
2021 (EUR 1,000)
Intangible assets Tangible assets
Tot a l Real estate Other tangible assets Right-of-use assets To t al
Acquisition cost 1 Jan 33,190 299 7,363 8,570 16,233
+ Additions 8,660 - 3 173 175
- Disposals -449 - -367 - -367
Acquisition cost 31 Dec 41,401 299 6,999 8,743 16,041
Accumulated depreciation 1 Jan 15,831 - 3,271 2,982 6,253
- Accumulated depreciation on disposals - - -226 - -226
+ Depreciation according to plan 2,783 - 1,216 1,610 2,826
+ Impairment * 10,482 - - - -
Accumulated depreciation and impairment charges 31 Dec 29,097 - 4,261 4,592 8,853
Carrying amount 31 Dec 12,305 299 2,738 4,151 7,188
* The line item includes a non-recurring item of impairment of EUR 10,482 thousand on MuniFin Group’s significant on-going IT system implementation.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 29. Other assets
Note 30. Accrued income and prepayments
(EUR 1,000) 31 Dec 2022 31 Dec 2021
Invoiced leasing 11,391 15,084
Given cash collateral to CCPs* 1,219,541 238,930
Other 3,730 1,924
Tot al 1,234,662 255,938
* Cash collaterals include expected credit loss amounting to EUR 203 thousand (EUR 13 thousand).
MuniFin did not have receivables related to payment transfers as at 31 Dec 2022 or 31 Dec 2021.
(EUR 1,000) 31 Dec 2022 31 Dec 2021
Accrued interest income 218,417 211,067
Other accrued income 0 196
Prepayments 4,671 1,349
Tot al 223,088 212,612
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 31. Deferred tax assets and liabilities
DEFERRED TAX ASSETS
(EUR 1,000) 1 Jan 2022
Recognised in the
income statement
Recognised
in equity
Paid during the
financial year 31 Dec 2022
On fair value reserve - - 763 - 763
Tot al - - 763 - 763
DEFERRED TAX LIABILITIES
(EUR 1,000) 1 Jan 2022
Recognised in the
income statement
Recognised
in equity
Paid during the
financial year 31 Dec 2022
On fair value reserve 3,499 - -3,499 - -
Tot al 3,499 - -3,499 - -
Voluntary credit loss provision and depreciation difference include EUR 291,718 thousand in non-recognised deferred tax liabilities.
DEFERRED TAX LIABILITIES
(EUR 1,000) 1 Jan 2021
Recognised in the
income statement
Recognised
in equity
Paid during the
financial year 31 Dec 2021
On fair value reserve 4,054 - -555 - 3,499
Tot al 4,054 - -555 - 3,499
Voluntary credit loss provision and depreciation difference include EUR 284,050 thousand in non-recognised deferred tax liabilities.
The Company did not have deferred tax assets as at 31 December 2021.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 32. Debt securities issued
31 Dec 2022 31 Dec 2021
(EUR 1,000) Carrying amount Nominal value Carrying amount Nominal value
Bonds 30,942,233 34,330,170 31,508,271 32,041,076
Other* 4,649,832 4,668,524 3,819,254 3,820,738
Tot a l 35,592,065 38,998,694 35,327,525 35,861,814
*Line item contains short-term funding issued by MuniFin.
MuniFin’s funding is guaranteed by the Municipal Guarantee Board.
BENCHMARK ISSUANCES DURING THE YEAR 2022 Value date Maturity date Interest-% Nominal value (1,000) Currency
Fixed rate benchmark bond, issued under the MTN programme 25 Jan 2022 25 Feb 2032 0.250% 1,000,000 EUR
Fixed rate benchmark bond, issued under the MTN programme 17 May 2022 17 May 2029 1.500% 500,000 EUR
Fixed rate benchmark bond, issued under the MTN programme 24 Aug 2022 24 Aug 2027 3.250% 1,000,000 USD
In the above table, the benchmark issuances are included by the settlement date. The offering circular is available in English on the website at www.munifin.fi/investor-relations.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
RECONCILIATION OF THE CARRYING AMOUNT OF
ISSUED DEBT
(EUR 1,000)
2022 2021
Liabilities to credit
institutions
Liabilities to the
public and public
sector entities
Debt securities
issued
Liabilities to credit
institutions
Liabilities to the
public and public
sector entities
Debt securities
issued
Carrying amount 1 Jan 2,059,906 3,324,685 35,327,525 1,343,358 3,884,026 32,911,906
Cash flow changes from operating activities
Additions to issued debt "bonds" 46,609 147,351 7,680,928 761,335 197,473 7,894,520
Additions to debt securities issued "other" - - 25,303,337 - - 13,219,018
Additions total 46,609 147,351 32,984,265 761,335 197,473 21,113,537
Deductions to issued debt "bonds" - -267,534 -5,541,011 -38,567 -587,713 -5,119,486
Deductions to debt securities issued "other" - - -24,472,759 - - -13,295,584
Deductions total - -267,534 -30,013,769 -38,567 -587,713 -18,415,070
Cash flow changes from operating activities in total 46,609 -120,183 2,970,495 722,767 -390,240 2,698,468
Changes in the balance sheet value including valuations and FX
revaluations -18,332 -674,917 -2,705,955 -6,219 -169,101 -282,849
Carrying amount 31 Dec 2,088,183 2,529,585 35,592,065 2,059,906 3,324,685 35,327,525
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 33. Other liabilities
(EUR 1,000) 31 Dec 2022 31 Dec 2021
Mandatory provisions
Restructuring provision - -
Other provisions 446 446
Other liabilities
Lease liabilities 3,046 4,231
Cash collateral taken from CCPs 570,922 333,295
Other 19,132 11,042
Tot al 593,547 349,014
Line item Other provisions relates to a tax interpretation issue for which the Company requested a preliminary ruling and for which the Company is waiting for the financial decision of the Supreme
Administrative Court.
(EUR 1,000)
Restructuring provision Other provisions
2022 2021 2022 2021
Carrying amount in the beginning of the reporting period - 504 446 -
Increase in provisions - - 5,100 446
Provisions used - -504 -5,100 -
Carrying amount at the end of the reporting period - - 446 446
During the financial year 2021, the restructuring provision related to the reorganisation of the Group’s operations in financial year 2020 was fully used. Increase in provisions and provision used in
2022 relate to the IT implementation project, which was terminated in 2022.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 34. Accrued expenses and deferred income
(EUR 1,000) 31 Dec 2022 31 Dec 2021
Accrued interest expenses 139,779 134,880
Other accrued expenses 7,943 41,579
Deferred income * 18,552 16,864
Tot al 166,274 193,323
* Item consists mainly of leasing prepayments.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 35. Subordinated liabilities
31 Dec 2022 (EUR 1,000) Currency Nominal value Book value Interest rate Earliest repayment
AT1 capital loan - - - - -
Tot al - -
31 Dec 2021 (EUR 1,000) Currency Nominal value Book value Interest rate Earliest repayment
AT1 capital loan EUR 350,000 349,388 Fixed 1 April 2022
Tot al 350,000 349,388
MuniFin redeemed its EUR 350 million Perpetual Fixed rate Resettable Additional Tier 1
Securities originally issued on 1 October 2015. The redemption date was 1 April 2022, which
was the first repayment date of the Securities in accordance with the terms and conditions
thereof. The Securities were redeemed at 100% of the aggregate nominal amount together
with accrued and unpaid interest until the redemption date.
Loan terms and conditions:
The loan is an unsecured debenture loan included under Additional Tier 1 capital, with special
terms designed to fulfil the requirements set for so-called AT1 capital loans in the Capital
Requirements Regulation (EU 575/2013). The loan does not have a maturity date. Interest
on the loan may only be paid out of distributable funds in accordance with the terms set in
the Capital Requirements Regulation, and the Company will decide whether interest will be
paid on the interest payment date. The cancellation of interest payments is final and unpaid
interest will not be added to the loan capital. The loan capital will be written off if the proportion
of the Company’s Common Equity Tier 1 (CET1) capital to risk-weighted assets falls below
5.125%. The Company may decide to re-book the loan capital partially or entirely if the Capital
Requirements Regulation permits this based on an improvement in the Company’s finances.
The Company has the right but not the obligation to repay the loan on 1 April 2022 or, after that,
annually on the interest payment date, as long as the buy-back is approved in advance by the
regulatory authority. The regulatory authority may authorise the repayment of the loan also
for particular reasons, for example if legislation or regulatory practice should change in such
a way that the Company loses the right to deduct the interest in full, or if the Company should
be forced to make the additional payments mentioned in the loan terms. The authorities may
also permit repayment of the loan if the loan’s official classification changes in such a way that
the loan would be likely to be excluded from the Company’s own funds, or if it is reclassified as
lower-value funds. The loan capital, interest payments and other repayments shall take lower
priority than all other higher-level debts in case of the Company’s dissolution or bankruptcy.
AT1 capital loan is recognised as equity in the Consolidated Financial Statements. In the Parent
Company’s Financial Statements AT1 capital loan is recognised under balance sheet item
Subordinated liabilities.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 36. Act on the Resolution of Credit Institutions (1194/2014)
MuniFin’s crisis resolution authority is the EU’s Single Resolution Board (SRB). The SRB has
imposed on MuniFin a binding minimum requirement for own funds and eligible liabilities
(MREL). The size of the MREL requirement is 10.00% of the total risk exposure amount and
3.00% of the leverage ratio exposure. The MREL requirement takes into account SRB’s
decision on that the simplified resolution strategy is applied to MuniFin.
The MREL requirement will take effect on 1 January 2024, but MuniFin must fully comply with
the final MREL target levels from 1 January 2022 onwards. MuniFin’s own funds and eligible
liabilities currently fulfil the MREL requirement with multiple times.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 37. Breakdown of financial assets and liabilities at carrying amount by maturity
FINANCIAL ASSETS
31 Dec 2022 (EUR 1,000) 0–3 months 3–12 months 1–5 years 5–10 years Over 10 years Total
Cash and balances with central banks 2 - - - - 2
Debt securities eligible for central bank refinancing 136,726 528,552 2,113,901 110,996 - 2,890,174
Loans and advances to credit institutions 9,592,217 - 32,253 - - 9,624,470
Loans and advances to the public and public sector entities 391,216 1,452,589 6,845,942 6,406,524 12,744,997 27,841,267
Leased assets * 7,465 20,979 76,516 51,821 117,272 274,053
Debt securities 1,240,831 330,065 293,850 31,848 - 1,896,594
Shares and participations - - - - - -
Shares and participations in Group companies - - - - 656 656
Derivative contracts 181,535 138,338 609,483 1,117,589 660,158 2,707,103
Other assets ** 1,219,541 - - - - 1,219,541
Tot al 12,769,533 2,470,523 9,971,945 7,718,778 13,523,082 46,453,861
* Line item includes leased assets for which MuniFin applies fair value hedge accounting. Unhedged leased assets are not presented in this table as leased assets are not regarded as financial
assets under IFRS 9 standard (classification).
** Line item includes cash collateral given to central counterparties.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
FINANCIAL LIABILITIES
31 Dec 2022 (EUR 1,000) 0–3 months 3–12 months 1–5 years 5–10 years Over 10 years Total
Liabilities to credit institutions 2,244,440 - 54,986 15,806 17,391 2,332,623
Liabilities to the public and public sector entities 152,794 77,633 862,967 665,161 771,031 2,529,585
Debt securities issued 7,377,026 3,390,051 18,464,896 4,415,718 1,944,375 35,592,065
Derivative contracts 565,161 263,843 1,753,642 1,160,809 872,656 4,616,111
Other liabilities * 571,370 1,317 1,281 - - 573,969
, of which lease liabilities 448 1,317 1,281 - - 3,046
Subordinated liabilities - - - - - -
Tot al 10,910,791 3,732,844 21,137,772 6,257,493 3,605,452 45,644,353
* Line item includes cash collateral received from central counterparties and lease liabilities in accordance with IFRS 16 standard.
Liabilities and hedging derivatives that may be called before maturity have been classified in the maturity class corresponding to the first possible call date. The Company estimates it will call
10–45% of its callable liabilities in 2023. In 2022, the Company called 19% of its callable liabilities.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
FINANCIAL ASSETS
31 Dec 2021 (EUR 1,000) 0–3 months 3–12 months 1–5 years 5–10 years Over 10 years To t al
Cash and balances with central banks 8,399,045 - - - - 8,399,045
Debt securities eligible for central bank refinancing 247,349 444,766 2,173,184 446,755 - 3,312,054
Loans and advances to credit institutions 1,382,272 - 34,292 - - 1,416,564
Loans and advances to the public and public sector entities 403,975 1,516,197 6,559,458 6,353,153 13,047,114 27,879,897
Leased assets 7,025 18,391 72,819 43,699 101,002 242,936
Debt securities 946,987 199,527 316,595 66,265 - 1,529,374
Shares and participations - - - - - -
Shares and participations in Group companies - - - - 656 656
Derivative contracts 176,162 85,276 652,855 444,830 640,553 1,999,676
Other assets 238,930 - - - - 238,930
Tot al 11,801,746 2,264,157 9,809,202 7,354,702 13,789,324 45,019,131
FINANCIAL LIABILITIES
31 Dec 2021 (EUR 1,000) 0–3 months 3–12 months 1–5 years 5–10 years Over 10 years To t al
Liabilities to credit institutions 1,991,110 750,000 10,613 19,599 29,695 2,801,016
Liabilities to the public and public sector entities 75,992 112,562 1,031,895 856,943 1,247,293 3,324,685
Debt securities issued 4,991,578 5,235,547 18,221,438 4,174,502 2,704,459 35,327,525
Derivative contracts 788,530 584,682 287,038 143,757 420,287 2,224,294
Other liabilities 333,703 1,221 2,602 - - 337,526
, of which lease liabilities 408 1,221 2,602 - - 4,231
Subordinated liabilities - 349,878 - - - 349,878
Tot al 8,180,913 7,033,890 19,553,587 5,194,802 4,401,733 44,364,925
Liabilities and hedging derivatives that may be called before maturity have been classified in the maturity class corresponding to the first possible call date. In 2021, the Company called 47% of its
callable liabilities.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 38. Breakdown of balance sheet items into domestic and foreign currency
ASSETS
31 Dec 2022 (EUR 1,000) Domestic currency Foreign currency Total
, of which
intra-group
Debt securities eligible for central bank refinancing 2,890,174 - 2,890,174 -
Loans and advances to credit institutions 9,577,806 46,663 9,624,470 -
Loans and advances to the public and public sector entities 27,841,267 - 27,841,267 -
Leased assets 1,303,094 - 1,303,094 -
Debt securities 1,867,201 29,392 1,896,594 -
Derivative contracts 2,705,581 1,522 2,707,103 -
Other assets including cash and balances in central banks 1,261,533 211,310 1,472,843 659
Tot al 47,446,658 288,888 47,735,546 659
LIABILITIES AND EQUITY
31 Dec 2022 (EUR 1,000) Domestic currency Foreign currency Total
, of which
intra-group
Liabilities to credit institutions 2,332,623 - 2,332,623 -
Liabilities to the public and public sector entities 2,509,865 19,720 2,529,585 -
Debt securities issued 14,918,101 20,673,964 35,592,065 -
Derivative contracts 4,224,574 391,537 4,616,111 -
Other liabilities including appropriations and equity 2,665,154 7 2,665,161 25
Subordinated liabilities - - - -
Tot al 26,650,317 21,085,228 47,735,546 25
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
ASSETS
31 Dec 2021 (EUR 1,000) Domestic currency Foreign currency Tota l
, of which
intra-group
Debt securities eligible for central bank refinancing 3,312,054 - 3,312,054 -
Loans and advances to credit institutions 1,387,920 28,643 1,416,564 -
Loans and advances to the public and public sector entities 27,879,897 - 27,879,897 -
Leased assets 1,334,146 - 1,334,146 -
Debt securities 1,499,172 30,202 1,529,374 -
Derivative contracts 1,781,439 218,237 1,999,676 -
Other assets including cash and balances in central banks 8,887,743 - 8,887,743 656
Tot al 46,082,371 277,082 46,359,453 656
LIABILITIES AND EQUITY
31 Dec 2021 (EUR 1,000) Domestic currency Foreign currency Tota l
, of which
intra-group
Liabilities to credit institutions 2,801,016 - 2,801,016 -
Liabilities to the public and public sector entities 3,262,800 61,885 3,324,685 -
Debt securities issued 14,636,794 20,690,731 35,327,525 -
Derivative contracts 2,172,656 51,639 2,224,294 -
Other liabilities including appropriations and equity 2,304,767 27,287 2,332,054 78
Subordinated liabilities 349,878 - 349,878 -
Tot al 25,527,910 20,831,542 46,359,453 78
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 39. Repurchase agreements
The Company did have receivables related to repurchase agreements as at 31 Dec 2022.
The receivable contain a repurchase agreement’s pledged security that counterparty
has not delivered to the Company on the maturity date of the repurchase agreement.
The security is presented in it’s carrying amount of EUR 9,580 thousand in Debt securities
that are Designated at fair value through profit or loss. In addition, the Company had
receivable related to given cash collateral on repurchase agreement.
The Company did not have any receivables or liabilities related to repurchase agreements
as 31 Dec 2021.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 40. Fair values and carrying amounts of financial assets and liabilities
FINANCIAL ASSETS
(EUR 1,000)
31 Dec 2022 31 Dec 2021
Carrying amount Fair value Carrying amount Fair value
Cash and balances with central banks 2 2 8,399,045 8,399,045
Debt securities eligible for central bank refinancing 2,890,174 2,890,174 3,312,054 3,312,054
Loans and advances to credit institutions 9,624,470 9,624,470 1,416,564 1,416,564
Loans and advances to the public and public sector entities 27,841,267 29,451,798 27,879,897 30,045,876
Leased assets * 274,053 288,092 242,936 255,907
Debt securities 1,896,594 1,896,208 1,529,374 1,529,739
Shares and participations - - - -
Shares and participations in Group companies 656 656 656 656
Derivative contracts 2,707,103 2,707,103 1,999,676 1,999,676
Other assets ** 1,219,541 1,219,541 238,930 238,930
Tot al 46,453,861 48,078,045 45,019,131 47,198,446
* Line item includes leased assets for which MuniFin applies fair value hedge accounting. Unhedged leased assets are not presented in this table as leased assets are not regarded as financial
assets under IFRS 9 standard (classification).
** Line item includes cash collateral given to central counterparties.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
FINANCIAL LIABILITIES
(EUR 1,000)
31 Dec 2022 31 Dec 2021
Carrying amount Fair value Carrying amount Fair value
Liabilities to credit institutions 2,332,623 2,332,609 2,801,016 2,800,913
Liabilities to the public and public sector entities 2,529,585 2,543,548 3,324,685 3,344,334
Debt securities issued 35,592,065 35,650,001 35,327,525 35,434,600
Derivative contracts 4,616,111 4,616,111 2,224,294 2,224,294
Other liabilities * 573,969 573,969 337,526 337,526
Subordinated liabilities - - 349,878 354,683
Tot al 45,644,353 45,716,238 44,364,925 44,496,351
* Line item includes cash collateral received from central counterparties and lease liabilities in accordance with IFRS 16 standard.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 41. Fair value hierarchy of financial assets and liabilities
Fair value is the price that would be received to sell the
asset or paid to transfer the liability in an orderly transaction
between market participants at the measurement date. The
Company measures fair values using the following fair value
hierarchy, which reflects the significance of the inputs used in
making the fair value measurements:
Level 1
Inputs that are quoted market prices (unadjusted) for
identical instruments in active markets that the Company
can access at the measurement date. The market is
considered to be active if trading is frequent and price data
is regularly available. These quotes (mid) represent the price
for an orderly transaction between parties in the market
on the valuation date. Level 1 instruments comprise mainly
investments in debt securities.
Level 2
Inputs other than quoted prices included within level 1 that
are observable either directly (i.e. as prices) or indirectly (i.e.
derived from prices). This level includes instruments valued
using quoted prices for identical instruments in markets that
are considered less than active or other valuation techniques
in which all significant inputs are directly or indirectly
observable from market data. Level 2 instruments comprise
mainly OTC derivatives, the Company’s issued plain-vanilla
financial liabilities and lending agreements.
Level 3
This level includes all instruments for which the valuation
technique includes inputs that are not observable and
the unobservable inputs have a significant effect on the
instrument’s valuation. Unobservable inputs are used only to
the extent that no relevant observable inputs are available.
If the valuation input is illiquid, extrapolated or based on
historical prices, the valuation input will be defined as a level
3 valuation input as these types of inputs are per definition
unobservable. This level includes financial instruments with
equity and FX structures due to impact of the utilisation of
inputs such as dividend yield on the fair value measurement.
In addition, level 3 contains some interest rate structures with
long maturities (exceeding e.g. 35 years) or in currencies
where the interest rate curve is not considered liquid for all
maturities.
Due to the nature of MuniFin’s funding portfolio (i.e. issued
bonds are hedged back-to-back), if a swap that is hedging an
issued bond is designated as a level 3 instrument, then the
issued bond will also be designated as a level 3 instrument.
Same principle applies to other portfolios and levels of the
hierarchy as well. The Company does not hold other assets
or liabilities which are measured at fair value or assets or
liabilities which are non-recurringly measured at fair value.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The following table presents financial instruments by the level of the fair value hierarchy into which the fair value measurement is categorised.
FINANCIAL ASSETS
31 Dec 2022 (EUR 1,000) Carrying amount
Fair value
Level 1 Level 2 Level 3 Tota l
At fair value
Fair value through fair value reserve
Debt securities 167,636 137,695 29,941 - 167,636
Designated at fair value through profit or loss
Loans and advances to the public and public sector entities 28,432 - 28,432 - 28,432
Debt securities 3,162,034 3,057,135 104,899 - 3,162,034
Mandatorily at fair value through profit or loss
Loans and advances to the public and public sector entities 31,090 - - 31,090 31,090
Shares and participations in Group companies 656 - - 656 656
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 504,097 - 489,218 14,880 504,097
Derivative contracts in hedge accounting 2,203,006 - 2,202,335 671 2,203,006
Total at fair value 6,096,951 3,194,830 2,854,824 47,297 6,096,951
In fair value hedge accounting
Amortised cost
Loans and advances to the public and public sector entities 11,348,612 - 11,926,267 - 11,926,267
Leased assets 274,053 - 288,092 - 288,092
Total in fair value hedge accounting 11,622,665 - 12,214,359 - 12,214,359
At amortised cost
Cash and balances with central banks 2 2 - - 2
Loans and advances to credit institutions 9,624,470 8,223,397 1,401,072 - 9,624,470
Loans and advances to the public and public sector entities 16,433,133 - 17,466,009 - 17,466,009
Debt securities 1,457,098 - 1,456,713 - 1,456,713
Other assets 1,219,541 - 1,219,541 - 1,219,541
Total at amortised cost 28,734,245 8,223,399 21,543,335 - 29,766,735
Total financial assets 46,453,861 11,418,229 36,612,519 47,297 48,078,045
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
FINANCIAL LIABILITIES
31 Dec 2022 (EUR 1,000) Carrying amount
Fair value
Level 1 Level 2 Level 3 Tota l
At fair value
Designated at fair value through profit or loss
Liabilities to credit institutions 3,291 - 3,291 - 3,291
Liabilities to the public and public sector entities 1,318,658 - 1,166,432 152,227 1,318,658
Debt securities issued 10,842,676 - 9,865,856 976,820 10,842,676
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 1,562,525 - 1,222,013 340,512 1,562,525
Derivative contracts in hedge accounting 3,053,586 - 3,047,585 6,001 3,053,586
Total at fair value 16,780,736 - 15,305,177 1,475,559 16,780,736
In fair value hedge accounting
Amortised cost
Liabilities to credit institutions 84,892 - 84,878 - 84,878
Liabilities to the public and public sector entities 1,210,927 - 1,224,889 - 1,224,889
Debt securities issued * 24,419,692 - 24,420,879 56,749 24,477,627
Total in fair value hedge accounting 25,715,510 - 25,730,646 56,749 25,787,395
At amortised cost
Liabilities to credit institutions 2,244,440 - 2,244,440 - 2,244,440
Debt securities issued 329,698 - 329,698 - 329,698
Other liabilities 573,969 - 573,969 - 573,969
Subordinated liabilities - - - - -
Total at amortised cost 3,148,106 - 3,148,106 - 3,148,106
Total financial liabilities 45,644,353 - 44,183,930 1,532,308 45,716,238
* MuniFin’s fixed-rate benchmark bond issuances are presented on level 2 due the fact that these bonds are in fair value hedge accounting with respect to the hedged risk. Valuation of the hedged
risk is based on the level 2 inputs. In the Notes of the Financial Statements, the Company’s fixed-rate benchmark bonds fair value is adjusted to reflect fair value based on the quoted prices from
Bloomberg. The market price is a level 1 input.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
FINANCIAL ASSETS
31 Dec 2021 (EUR 1,000) Carrying amount
Fair value
Level 1 Level 2 Level 3 Tota l
At fair value
Fair value through fair value reserve
Debt securities 213,466 172,717 40,748 - 213,466
Designated at fair value through profit or loss
Loans and advances to the public and public sector entities 38,941 - 38,941 - 38,941
Debt securities 3,539,074 3,451,809 87,265 - 3,539,074
Mandatorily at fair value through profit or loss
Loans and advances to the public and public sector entities 35,204 - 344 34,861 35,204
Shares and participations in Group companies 656 - - 656 656
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 761,023 - 698,194 62,829 761,023
Derivative contracts in hedge accounting 1,238,653 - 1,238,246 407 1,238,653
Total at fair value 5,827,016 3,624,526 2,103,737 98,752 5,827,016
In fair value hedge accounting
Amortised cost
Loans and advances to the public and public sector entities 12,725,453 - 13,493,603 - 13,493,603
Leased assets 242,936 - 255,907 - 255,907
Total in fair value hedge accounting 12,968,390 - 13,749,511 - 13,749,511
At amortised cost
Cash and balances with central banks 8,399,045 8,399,045 - - 8,399,045
Loans and advances to credit institutions 1,416,564 105,988 1,310,576 - 1,416,564
Loans and advances to the public and public sector entities 15,080,299 - 16,478,128 - 16,478,128
Debt securities 1,088,888 - 1,089,253 - 1,089,253
Other assets 238,930 - 238,930 - 238,930
Total at amortised cost 26,223,725 8,505,033 19,116,886 - 27,621,919
Total financial assets 45,019,131 12,129,559 34,970,134 98,752 47,198,446
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
FINANCIAL LIABILITIES
31 Dec 2021 (EUR 1,000) Carrying amount
Fair value
Level 1 Level 2 Level 3 Tota l
At fair value
Designated at fair value through profit or loss
Liabilities to credit institutions 4,787 - 4,787 - 4,787
Liabilities to the public and public sector entities 1,548,394 - 1,284,601 263,793 1,548,394
Debt securities issued 10,008,299 - 8,248,729 1,759,569 10,008,299
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 1,114,003 - 369,705 744,299 1,114,003
Derivative contracts in hedge accounting 1,110,291 - 1,084,602 25,690 1,110,291
Total at fair value 13,785,774 - 10,992,423 2,793,350 13,785,774
In fair value hedge accounting
Amortised cost
Liabilities to credit institutions 55,120 - 55,016 - 55,016
Liabilities to the public and public sector entities 1,776,291 - 1,795,941 - 1,795,941
Debt securities issued 24,852,845 - 24,873,880 86,040 24,959,920
Total in fair value hedge accounting 26,684,256 - 26,724,837 86,040 26,810,877
At amortised cost
Liabilities to credit institutions 2,741,110 - 2,741,110 - 2,741,110
Debt securities issued 466,381 - 466,381 - 466,381
Other liabilities 337,526 - 337,526 - 337,526
Subordinated liabilities 349,878 - 354,683 - 354,683
Total at amortised cost 3,894,895 - 3,899,701 - 3,899,701
Total financial liabilities 44,364,925 - 41,616,961 2,879,390 44,496,351
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
All valuation models, both complex and simple models,
use market prices and other inputs. These market
prices and inputs comprise interest rates, FX rates,
volatilities, correlations etc. The Company applies
different types of valuation inputs depending on the type
and complexity of the instruments and the related risk
factors and payoff structures. The Company’s defined
categorisation to the fair value hierarchy levels is based
on the analysis performed with regards to the valuation
input, stress testing (reasonable possible alternative
assumption) and model complexity. If the inputs used to
measure fair value are categorised into different levels
on the fair value hierarchy, the fair value measurement is
categorised in its entirety on the level of the lowest level
input that is significant to the entire measurement.
IFRS 13 standard classifies valuation models and techniques
into three different categories: market approach, income
approach and cost approach. The Company applies
the market-based approach when the instrument has
a functioning market and public price quotations are
available. The Company uses the market approach for
the valuation of investment bonds of the liquidity portfolio.
For all level 1 assets, the Company uses market prices
available for identical assets (same ISIN). The Company
does not make use of prices for comparable assets.
Income approach is applied when valuation is based, for
example, on determining the present value of future cash
flows (discounting). Valuation methods take into account
an assessment of the credit risk, discount rates used,
the possibility of early repayment and other factors that
influence the fair value of a financial instrument reliably. The
Company uses the income approach for many of its financial
instruments, for example derivatives, lending and funding.
The Company does not use the cost approach for the
valuation of any of its financial instruments.
The Company uses widely recognised valuation models
to determine the fair value of common and simple financial
instruments, such as interest rate and currency swaps,
that use only observable market data and require little
management judgement and estimation. Observable
prices or model inputs are usually available in the market
for listed debt and equity securities and simple OTC
derivatives such as interest rate swaps. The availability
of observable market prices and model inputs reduces
the need for management judgement and estimation and
reduces the uncertainty associated with determining fair
values. The availability of observable market prices and
inputs varies depending on the products and markets
and is prone to changes based on specific events
and general conditions in the financial markets.
MuniFin applies different models in order to derive the fair
value of a certain type of instrument. The choice of base
model and model calibration depends on the complexity
of the financial instrument and the observability of the
relevant inputs. In line with market practice, the primary
choice of base model is contingent on the underlying
instrument classes. Additionally, instruments are broken
down into different categories granular enough to capture
the most important risk drivers and different kinds of
calibration techniques. The specific combination of base
models and the different assumptions and calibration
techniques are documented. The Company’s fair value
instruments that are subject to mark-to-model valuation
techniques consists out of four asset classes:
• Interest rate instruments,
• FX instruments,
• Equity-linked instruments and
• Hybrid instruments.
Financial instruments under FX, Equity-linked and Hybrid
classes are mainly classified as level 3 instruments.
The fair value of financial instruments is generally calculated
as the net present value of the individual instruments.
This calculation is supplemented by counterparty level
adjustments. The Company incorporates credit valuation
adjustments (CVA) and debit valuation adjustments
(DVA) into derivative valuations. CVA reflects the impact
of the counterparty’s credit risk on fair value and DVA
MuniFin’s own credit quality. The Company uses the same
methodology to compute CVA and DVA. They are both
assessed as the result of three inputs: Loss Given Default
(LGD), Probability of Default (PD, own for DVA and of the
counterparty for CVA) and Expected Exposure (EE).
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Valuation framework
MuniFin has implemented a framework for the arrangements,
activities and procedures with regards to the Company’s
model risk management. The purpose of the model
risk management framework is to ensure the effective
management of model risk and mitigation of fair value
uncertainty, as well as to ensure compliance with external and
internal requirements. The Company ensures that all aspects
of the lifecycle of valuation models (i.e. approval, design
and development, testing and maintenance, monitoring
and execution) are subject to effective governance, clear
roles and responsibilities and effective internal control.
The Company manages and maintains a model
inventory which provides a holistic view of all valuation
models, their business purpose and characteristics
as well as their applications and conditions for use.
All approved valuation models within the model
inventory are subject to annual review and re-approval
by the Executive Management Team (EMT).
The Finance Management Team acts as a valuation
control group for MuniFin’s fair values and is responsible
for the final approval of MuniFin’s fair values for financial
reporting. The Finance Management Team monitors and
controls MuniFin’s valuation process and the performance
of valuation models, decides on the necessary measures
and reports to the EMT. The Finance Management Team
assesses whether the valuation models and valuation
process provide sufficiently accurate information
to be used in financial reporting and, based on the
information received, decides on possible adjustments
to the values generated by the valuation process.
The Company has implemented an efficient control and
performance monitoring framework with regards to its
valuation models, which aims to ensure the accuracy
and appropriateness of model output. The model
performance monitoring consists of four main controls:
• Counterparty valuation control (CVC),
• Fair value explanation,
• Independent price verification (IPV) and
• Independent model validation.
Counterparty valuation control (CVC) is performed daily
by Risk Management, which assesses any deviations in
valuation model output compared to MuniFin’s own earlier
valuations and to counterparty valuations. The results
of the assessment are reported monthly to the CFO and
quarterly to the Finance Management Team. Fair value
explanation process consists of a daily analysis and explain
of the changes in fair values by Risk Management and a
monthly fair value explain report to the CFO and quarterly
to the Finance Management Team. The independent
price verification is performed monthly as part of
MuniFin’s IPV process by a third party service provider.
The results of the control activities are reported monthly
to the CFO and quarterly to the Finance Management
Team. The independent model validation is performed
annually for a subset of MuniFin’s valuation models by
a third-party service provider. The results of the model
validation are reported to the Finance Management Team.
Transfers in the fair value hierarchy
MuniFin assesses the appropriateness and correctness of
the categorisation with regards to the fair value hierarchy
classification at initial recognition and at the end of each
reporting period. This is to determine the initial classification
of a level 1, 2 and 3 instrument and the subsequent potential
transfers between levels within the fair value hierarchy.
A transfer between the fair value hierarchies can occur
for example when a previously assumed observed input
requires an adjustment using an unobservable input. The
procedure is the same for transfers into and out of the fair
value levels. Transfers between the levels are considered to
take place at the end of the quarter during which an event
causes such a transfer or when circumstances change.
During 2022, transfers totaling EUR 9,270 thousand
have been made between level 1 and level 2. During
2022, there were no transfers from level 2 to level 3.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
LEVEL 3 TRANSFERS
2022 (EUR 1,000) 1 Jan 2022
Change in fair value in
the income statement
Purchases and new
contracts
Sales and matured
contracts
Transfers
into level 3
Transfers
out of level 3 31 Dec 2022
Financial assets
At fair value
Mandatorily at fair value through profit or loss
Loans and advances to the public and public sector entities 34,861 -3,649 - -121 - - 31,090
Shares and participations in Group companies 656 - - - - - 656
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 62,829 -42,509 687 -5,415 - -713 14,880
Derivative contracts in hedge accounting 407 515 66 - - -317 671
Financial assets in total 98,753 -45,643 753 -5,536 - -1,030 47,297
Financial liabilities
At fair value
Designated at fair value through profit or loss
Liabilities to the public and public sector entities 263,793 -46,923 - - - -64,643 152,227
Debt securities issued 1,759,569 -122,696 180,471 -796,670 - -43,855 976,820
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 744,299 150,724 20,607 -569,309 - -5,809 340,512
Derivative contracts in hedge accounting 25,690 -1,179 2,884 -133 - -21,260 6,001
In fair value hedge accounting
Amortised cost
Debt securities issued 86,040 1,491 26,047 -3,066 - -53,764 56,749
Financial liabilities in total 2,879,390 -18,583 230,009 -1,369,177 - -189,331 1,532,308
Level 3 financial assets and liabilities in total * 2,978,143 -64,226 230,762 -1,374,713 - -190,361 1,579,605
* The Company recognises these gains and losses within the line items Net income from securities and foreign exchange transactions and Net income from hedge accounting. The fair value change
due to changes in own credit risk of financial liabilities designated at fair value through profit or loss is recognised in the Own credit revalution reserve.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Sensitivity analysis of unobservable inputs
Sensitivity analysis illustrates the impact of the reasonably possible assumptions on the
fair value of financial instruments for which valuation is dependent on unobservable inputs.
However, it is unlikely in practice that all unobservable inputs would simultaneously move to
extremes of reasonably possible alternatives used in the sensitivity analysis. Hence, the impact
of the sensitivity analysis disclosed in this Note is likely to be greater than the true uncertainty in
the fair values at the financial statement date. Furthermore, the disclosure is neither predictive
nor indicative of future movements in the fair value of financial instruments.
Although the Company believes that its estimates of fair value are appropriate, the use of
different methodologies or assumptions could lead to different measurements of fair value. For
fair value measurements on level 3, changing one or more of the assumptions to the reasonably
possible alternative assumptions would have the following effects: as of 31 December 2022,
these assumptions could have increased fair values by EUR 60.6 million or decreased fair
values by EUR 71.1 million.As of 31 December 2021, these assumptions could have increased
fair values by EUR 60.3 million or decreased fair values by EUR 59.6 million.
SENSITIVITY ANALYSIS OF SIGNIFICANT UNOBSERVABLE INPUTS BY INSTRUMENT TYPE
(EUR 1,000)
Positive range
of fair value
2022
Negative range
of fair value
2022
Positive range
of fair value
2021
Negative range
of fair value
2021
Loans and advances to the public and public sector entities
Loans 249 -273 133 -84
Derivative contracts
Equity-linked derivatives 18,117 -22,052 18,864 -11,446
FX-linked cross currency and interest rate derivatives 834 -1,318 2,644 -1,537
Other interest rate derivatives 11,726 -11,860 13,173 -13,344
Debt securities issued and Liabilities to the public and public sector entities
Equity-linked liabilities 16,927 -23,275 12,350 -18,115
FX-linked liabilities 834 -990 704 -2,233
Other liabilities 11,919 -11,327 12,412 -12,810
Tot al 60,606 -71,095 60,279 -59,570
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The behaviour of the fair value of the unobservable inputs
on level 3 is not necessarily independent and dynamic
relationships often exist between the unobservable inputs
and the observable inputs. Such relationships, where
material to the fair value of a given instrument, are controlled
via pricing models or valuation techniques. MuniFin uses
stochastic models to generate a distribution of future cash
flows of each financial instrument. The future cash flows
are then discounted back to present to get the fair value for
each financial instrument. The stochastic models used by the
Company are Hull-White model and Dupire volatility model.
The unobservable inputs used by the Company are
described next. The unobservable inputs are used only to
the extent that no relevant observable inputs are available.
Correlation parameters
If the fair value of a financial instrument is impacted by
more than one unobservable input, correlations describe
the relationship between these different underlyings.
For example for equity-linked instruments, correlation has
a significant impact on fair value if the underlying is
dependant on more than one equity. For FX-linked cross
currency and interest rate derivatives, correlations exist
between FX rates of currencies, which impact the fair
value of the financial instrument. If a high correlation exists
between the unobservable inputs, will it lead to an increase
in fair value. A low correlation between the unobservable
inputs will lead to a decrease in fair value. MuniFin Group
has financial instruments, in which correlation is a significant
unobservable input, mainly in funding products and their
hedging instruments.
Volatility (extrapolated or illiquid)
A financial instrument whose value is based on a stochastic
model will typically require the volatility of the underlying
instrument as an input. The Company uses Dupire local
volatility model as its stochastic valuation model. For interest
rate volatilities at-the-money implied volatility is used. For FX
and equity components (both equity indices and single stock
prices), a full volatility surface is used that includes quotes for
different strikes and maturities. The Company uses implied
volatility for the majority of the equity-linked structures. In
some cases no liquid volatility surface exists. In these cases,
a proxy volatility is typically used instead. The majority of
the financial instruments, which use volatility as a significant
unobservable input, are the Company’s funding products and
their hedging instruments.
Dividend yield
The main drivers influencing the fair value of equity-linked
instruments are the dividend yield and volatility of the
underlying equities. Equity-linked instruments require a
dividend parameter as an input to the fair value. The equity
component is modelled using the Dupire local volatility model
where the underlying equity prices are assumed to follow
a random walk. Instruments that have divident yield as a
significant unobservable input, are the Company’s funding
products and their hedging instruments.
Interest rates (extrapolated or illiquid)
The Company uses unobservable inputs in defining the fair
value of complex interest rate structures. The future cash
flows and their fair value is determined by using forward
rates and volatilities of the underlying interest rates using the
Hull-White stochastic model. Financial instruments whose
payoffs are dependent on the value of complex interest rate
structures are categorised on level 3. The majority of these
instruments requiring extrapolated or illiquid interest rates as
input are the Company’s funding products and their hedging
instruments.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The following table illustrates the effect that changing one or more of the assumptions in the unobservable input (reasonably possible alternative assumptions) could have on the valuations at the
financial statement date:
SENSITIVITY ANALYSIS OF UNOBSERVABLE INPUTS
31 Dec 2022 (EUR 1,000) Fair value Valuation technique Unobservable input
Positive range
of fair value
Negative range
of fair value
Loans and advances to the public and public sector entities
Loans 31,090 Stochastic model Volatility – Extrapolated or Illiquid 249 -273
Derivative contracts
Equity-linked derivatives -104,317 Stochastic model
Correlation parameters -1,743 -1,906
Volatility – Extrapolated or Illiquid 21,290 -1 7,708
Dividend yield -1,430 -2,438
FX-linked cross currency and interest rate derivatives -120,294 Stochastic model
Correlation parameters -11 -121
Volatility – Extrapolated or Illiquid 845 -1,197
Interest rates – Extrapolated or Illiquid 0 0
Other interest rate derivatives -106,351 Stochastic model
Correlation parameters 80 14
Volatility – Extrapolated or Illiquid 11,510 -11,736
Interest rates – Extrapolated or Illiquid 136 -138
Debt securities issued and Liabilities to the public and
public sector entities
Equity-linked liabilities 676,238 Stochastic model
Correlation parameters 569 -194
Volatility – Extrapolated or Illiquid 15,511 -22,611
Dividend yield 847 -470
FX-linked liabilities 170,030 Stochastic model
Correlation parameters -36 -133
Volatility – Extrapolated or Illiquid 870 -857
Interest rates – Extrapolated or Illiquid 0 0
Other liabilities 339,527 Stochastic model
Correlation parameters 0 0
Volatility – Extrapolated or Illiquid 11,876 -11,285
Interest rates – Extrapolated or Illiquid 43 -43
Tot al 60,606 -71,095
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
DAY 1 GAIN OR LOSS (EUR 1,000) Jan–Dec 2022 Jan–Dec 2021
Opening balance 1 Jan -236 -29
Recognised gain in the income statement 498 412
Recognised loss in the income statement -470 -711
Deferred gain or loss on new transactions -184 91
Total 31 Dec -392 -236
The definition and amortisation method for the Day 1 gain or loss is presented in the accounting policies of the Consolidated Financial Statements (Note 1) in Section 13. Determination of fair value.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Transfers in the fair value hierarchy and sensitivity analysis 2021
During 2021, transfers totaling EUR 50,127 thousand have been made between level 1 and level. During 2021, there were no transfers from level 2 to level 3.
LEVEL 3 TRANSFERS
2021 (EUR 1,000) 1 Jan 2021
Change in fair value in
the income statement
Purchases and
new contracts
Sales and matured
contracts
Transfers
into level 3
Transfers
out of level 3 31 Dec 2021
Financial assets
At fair value
Mandatorily at fair value through profit or loss
Loans and advances to the public and public sector entities 43,735 -4,878 - -3,997 - - 34,861
Shares and participations 27 - - -27 - - -
Shares and participations in Group companies 656 - - - - - 656
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 79,452 -14,590 604 -2,636 - - 62,829
Derivative contracts in hedge accounting 572 -366 317 - - -117 407
Financial assets in total 124,443 -19,834 921 -6,660 - -117 98,753
Financial liabilities
At fair value
Designated at fair value through profit or loss
Liabilities to the public and public sector entities 224,413 -8,408 47,787 - - - 263,793
Debt securities issued 2,125,714 -144,658 762,861 -975,731 - -8,617 1,759,569
Fair value through profit or loss
Derivative contracts at fair value through profit or loss 646,293 136,055 38,581 -76,252 - -378 744,299
Derivative contracts in hedge accounting 24,391 6,797 450 - - -5,948 25,690
In fair value hedge accounting
Amortised cost
Debt securities issued 94,048 -1,802 27,162 - - -33,368 86,040
Financial liabilities in total 3,114,859 -12,015 876,840 -1,051,984 - -48,310 2,879,390
Level 3 financial assets and liabilities in total 3,239,302 -31,849 877,761 -1,058,644 - -48,427 2,978,143
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
SENSITIVITY ANALYSIS OF UNOBSERVABLE INPUTS
2021 (EUR 1,000) Fair value Valuation technique Unobservable input
Positive range of
fair value
Negative range of
fair value
Loans and advances to the public and public sector entities
Loans 34,861 Stochastic model Volatility – Extrapolated or Illiquid 133 -84
Derivative contracts
Equity-linked derivatives -37,319 Stochastic model
Correlation parameters 759 653
Volatility - Extrapolated or Illiquid 17,551 -11,504
Dividend yield 554 -595
FX-linked cross currency and interest rate derivatives -647,461 Stochastic model
Correlation parameters 498 -353
Volatility – Extrapolated or Illiquid 2,145 -1,183
Interest rates – Extrapolated or Illiquid 1 -1
Other interest rate derivatives -21,972 Stochastic model
Correlation parameters 7 0
Volatility - Extrapolated or Illiquid 12,870 -13,048
Interest rates – Extrapolated or Illiquid 296 -296
Debt securities issued and Liabilities to the public and
public sector entities
Equity-linked liabilities 741,554 Stochastic model
Correlation parameters 229 -149
Volatility – Extrapolated or Illiquid 11,455 -16,829
Dividend yield 666 -1,137
FX-linked liabilities 785,053 Stochastic model
Correlation parameters 17 -123
Volatility – Extrapolated or Illiquid 677 -2,099
Interest rates – Extrapolated or Illiquid 11 -11
Other liabilities 582,795 Stochastic model
Correlation parameters 1 0
Volatility – Extrapolated or Illiquid 12,313 -12,711
Interest rates – Extrapolated or Illiquid 98 -98
Tot al 60,279 -59,570
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 42. Equity
(EUR 1,000) Share capital Reserve fund
Fair value reserve of
investments
Own credit
revaluation reserve
Cost-of-Hedging
reserve
Reserve for invested
non-restricted equity
Retained
earnings To t al
Carrying amount 1 Jan 2022 43,008 277 309 64 13,621 40,743 267,950 365,972
+ Increase - - 2 - - - 138,061 138,063
- Decrease - - -4,769 -147 -12,133 - -40,236 -57,284
Carrying amount 31 Dec 2022 43,008 277 -4,457 -83 1,488 40,743 365,775 446,750
(EUR 1,000) Share capital Reserve fund
Fair value reserve of
investments
Own credit
revaluation reserve
Cost-of-Hedging
reserve
Reserve for invested
non-restricted equity
Retained
earnings To t al
Carrying amount 1 Jan 2021 43,008 277 847 -255 15,624 40,743 151,454 251,698
+ Increase - - - 320 - - 136,809 137,129
- Decrease - - -538 - -2,004 - -20,313 -22,855
Carrying amount 31 Dec 2021 43,008 277 309 64 13,621 40,743 267,950 365,972
DISTRIBUTABLE FUNDS 31 Dec 2022 31 Dec 2021
Retained earnings 227,714 131,141
Net profit for the financial year 138,061 136,809
Tot al 365,775 267,950
31 December 2022, the distributable funds totalled EUR 365,774,616.34 (EUR 267,949,619.07).
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 43. Share capital Note 44. Largest shareholders
The shares of Municipality Finance Plc are divided into A and B shares. The two types
are equal in terms of voting rights and the distribution of profit. Each share entitles
its holder to one vote. The shares have no nominal value. The acquisition of shares is
restricted through the consent and redemption clauses of the Articles of Association.
At the end of 2022, the Company’s share capital, paid up and recorded in the Trade
Register, amounted to EUR 43,008 thousand (EUR 43,008 thousand). The total
number of shares is 39,063,798 (39,063,798) which is divided to A shares 26,331,646
(26,331,646) and B shares 12,732,152 (12,732,152).
The ten largest shareholders in terms of voting rights and the number of shares held
by them, their portion of all shares in the credit institution and of all votes carried by the
shares as well as the total number of shareholders:
31 Dec 2022 No. of shares Per cent
1. Keva 11,975,550 30.66%
2. Republic of Finland 6,250,000 16.00%
3. City of Helsinki 4,066,525 10.41%
4. City of Espoo 1,547,884 3.96%
5. VAV Asunnot Oy * 963,048 2.47%
6. City of Tampere 919,027 2.35%
7. City of Oulu 903,125 2.31%
8. City of Turku 763,829 1.96%
9. City of Kuopio 592,028 1.52%
10. City of Lahti 537,926 1.38%
* VAV Asunnot Oy is fully owned by City of Vantaa.
The total number of shareholders is 276 (276).
The number of shares in this table does not include possible shares held by the
shareholders’ group companies.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 45. Collateral given
Notes on collateral and contingent liabilities
GIVEN COLLATERALS ON BEHALF OF OWN LIABILITIES AND COMMITMENTS
(EUR 1,000) 31 Dec 2022 31 Dec 2021
Loans and advances to credit institutions to the counterparties of derivative contracts * 1,400,559 1,310,576
Loans and advances to credit institutions to the counterparties of repurchase agreements ** 514 -
Loans and advances to credit institutions to the central bank *** 31,745 35,984
Loans and advances to the public and public sector entities to the central bank *** 3,676,627 4,716,147
Loans and advances to the public and public sector entities to the Municipal Guarantee Board **** 12,101,459 11,474,101
Debt securities to the counterparties of repurchase agreements** 9,580 -
Debt securities to the central counterparty 24,942 -
Other assets to the counterparties of derivative contracts * 1,219,541 238,930
Tot al 18,464,967 17,775,738
* MuniFin has pledged collateral to the counterparties of derivative contracts based on the CSA agreements of the derivative contracts (ISDA/Credit Support Annex).
** MuniFin has pledged collateral to the counterparties of repurchase agreements based on the GMRA (General Master Repurchase Agreement).
*** MuniFin is a monetary policy counterparty approved by the central bank (the Bank of Finland) and for this purpose collateral has been pledged to the central bank
for possible operations related to this counterparty position.
**** MuniFin has pledged loans shown in the table to the Municipal Guarantee Board. The Municipal Guarantee Board guarantees MunFin’s funding and MuniFin places collateral for the
Municipal Guarantee Board’s guarantees as defined in the Act on the Municipal Guarantee Board.
Collateral given is presented at the carrying amounts of the financial statement date.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 46. Pension liabilities
Note 47. Off-balance sheet commitments
Pension coverage has been arranged via an external pension insurance company. Pension plans are classified as defined contribution plans.
(EUR 1,000) 31 Dec 2022 31 Dec 2021
Credit commitments 2,463,978 2,592,877
Tot al 2,463,978 2,592,877
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 48. Personnel
Notes on personnel and management
2022 2021
Average End of year Average End of year
Permanent full-time 147 149 143 144
Permanent part-time 3 4 1 1
Fixed term 12 12 7 8
Tot al 162 165 151 153
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
MuniFin has provided to those members of the EMT
that have been appointed as members (including
CEO and the Deputy to the CEO) before 21 Dec 2017
with a contribution-based group pension insurance.
Those members are entitled to pension from the
insurance after they have turned 63 years.
The Company has paid the following statutory
pension contributions related to the CEO, the
Deputy to the CEO and other members of the EMT,
which are described in the adjacent table.
SALARIES AND REMUNERATION (EUR 1,000) 2022 2021
President and CEO -435 -430
Deputy to the CEO -272 -224
Other members of the Executive Management Team in total -1,436 -1,307
Tot al -2,142 -1,961
STATUTORY PENSION CONTRIBUTIONS (EUR 1,000) 2022 2021
President and CEO -74 -71
Deputy to the CEO -46 -37
Other members of the Executive Management Team in total -244 -216
Tot al -364 -324
Employee benefits for management
Salaries and remuneration paid to the CEO, Deputy
to the CEO and other members of the Executive
Management Team (EMT) subject to withholding
tax are described in the adjacent table.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Remuneration of the Board of Directors
During the term 2022–2023, the members of the Board
of Directors of the Parent Company are paid an annual
remuneration as well as remuneration for each meeting in
accordance with the decision of the Annual General Meeting.
The annual remuneration is EUR 40,000 for the Chair of
the Board, EUR 26,000 for the Vice Chair, EUR 28,000 for
the Chairs of Committees and EUR 23,000 for the other
members of the Board. The remuneration paid for Board and
Committee meetings is EUR 800 per meeting for the Chair
of the Board and the Chairs of Committees and EUR 500
per meeting for the other members. In addition, meeting
remuneration is paid for the meetings required by the
supervisory authorities.
During the term 2021–2022, the annual remuneration was
EUR 35,000 for the Chair of the Board, EUR 23,000 for
the Vice Chair, EUR 25,000 for the Chairs of Committees
and EUR 20,000 for the other members of the Board.
The meeting remuneration has remained at the same level.
These remunerations are valid also in term 2020–2021.
SALARIES AND REMUNERATION (EUR 1,000)
Members of the Board of Directors 2022 2021
Helena Walldén, Chair until 25 March 2021 - -14
Kari Laukkanen, Chair 25 March 2021 onwards -54 -52
Tuula Saxholm, Vice Chair until 25 March 2021 - -9
Maaria Eriksson, Vice Chair 25 March 2021 onwards -35 -32
Markku Koponen -43 -42
Vivi Marttila -33 -31
Tuomo Mäkinen, elected 25 March 2021 -31 -22
Minna Smedsten, elected 25 March 2021 -34 -22
Denis Strandell -34 -31
Leena Vainiomäki, elected 25 March 2021 -40 -30
Kimmo Viertola, Member until 24 March 2022 -7 -28
Tot al -310 -313
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 49. Loans and other financial receivables from the related parties
Related party transactions
MuniFin does not have any loan or financial receivables, or other receivables referred to in Chapter 15 Section 13 (2) of the Act on Credit Institutions from related parties.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 50. Holdings in other companies
Holdings in other companies
(EUR 1,000)
2022 2021
Proportion of
all shares, % Carrying amount
Proportion of
all shares, % Carrying amount
Subsidiaries
Financial Advisory Services Inspira Ltd 100.0 656 100.0 656
Tot al 100.0 656 100.0 656
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Note 51. Audit and other fees paid to the audit firm
Other notes
(EUR 1,000) Jan–Dec 2022 Jan–Dec 2021
Audit -393 -340
Assignments as referred to in Subparagraph 2, Paragraph 1 Section 1 of the Auditing Act -13 -
Tax advisory services -23 -17
Other services -153 -146
Tot al -581 -504
Amounts do not include VAT.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Signa tur es t o the R epor t o f
the Board of Directors and the
Financial Statements
Signatures to the Report of the Board of Directors
and the Financial Statements
Helsinki, 10 February 2023
MUNICIPALITY FINANCE PLC
Kari Laukkanen
Chair of the Board
Maaria Eriksson
Vice Chair of the Board
Markku Koponen
Member of the Board
Vivi Marttila
Member of the Board
Tuomo Mäkinen
Member of the Board
Minna Smedsten
Member of the Board
Denis Strandell
Member of the Board
Esa Kallio
President and CEO
Leena Vainiomäki
Member of the Board
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Auditor’s Note
A report of the audit performed has been issued today.
Helsinki, 10 February 2023
KPMG Oy Ab
Tiia Kataja
Authorized Public Accountant
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Auditor’s Report
Municipality Finance Plc
Auditor’s Report
for the year ended 31 December 2022
To the Annual General Meeting of Municipality Finance Plc
Report on the Audit of the Financial Statements
Opinion
We have audited the financial statements of Municipality
Finance Plc (business identity code 1701683-4) for the year
ended 31 December 2022. The financial statements comprise
the consolidated statement of financial position, income
statement, statement of comprehensive income, statement
of changes in equity, statement of cash flows and notes,
including a summary of significant accounting policies, as well
as the parent company’s balance sheet, income statement,
statement of cash flows and notes.
In our opinion
— the consolidated financial statements give a true and fair
view of the group’s financial position, financial performance
and cash flows in accordance with International Financial
Reporting Standards (IFRS) as adopted by the EU
— the financial statements give a true and fair view of the
parent company’s financial performance and financial
position in accordance with the laws and regulations
governing the preparation of financial statements in
Finland and comply with statutory requirements.
Our opinion is consistent with the additional report submitted
to the Audit Committee.
Basis for Opinion
We conducted our audit in accordance with good auditing
practice in Finland. Our responsibilities under good auditing
practice are further described in the Auditor’s Responsibilities
for the Audit of the Financial Statements section of our report.
We are independent of the parent company and of the group
companies in accordance with the ethical requirements that
are applicable in Finland and are relevant to our audit, and we
have fulfilled our other ethical responsibilities in accordance
with these requirements.
To our best knowledge and understanding, the non-audit
services that we have provided to the parent company and
group companies are in compliance with laws and regulations
applicable in Finland regarding these services, and we have
not provided any prohibited non-audit services referred to in
Article 5(1) of regulation (EU) 537/2014. The non-audit services
that we have provided have been disclosed in note 51 to the
parent company’s financial statements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Materiality
The scope of our audit was influenced by our application
of materiality. The materiality is determined based on our
professional judgement and is used to determine the nature,
timing and extent of our audit procedures and to evaluate
the effect of identified misstatements on the financial
statements as a whole. The level of materiality we set is based
on our assessment of the magnitude of misstatements that,
individually or in aggregate, could reasonably be expected
to have influence on the economic decisions of the users of
the financial statements. We have also taken into account
misstatements and/or possible misstatements that in our
opinion are material for qualitative reasons for the users of the
financial statements.
Key Audit Matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
financial statements of the current period. These matters
were addressed in the context of our audit of the financial
statements as a whole and in forming our opinion thereon, and
we do not provide a separate opinion on these matters. The
significant risks of material misstatement referred to in the EU
Regulation No 537/2014 point (c) of Article 10(2) are included
in the description of key audit matters below.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
THE KEY AUDIT MATTER HOW THE MATTER WAS ADDRESSED IN THE AUDIT
Financial assets and financial liabilities measured at fair value (notes to group financial statements 1, 2, 3, 5, 6, 7, 16, 17, 24 and 25)
— The carrying amount of financial assets measured at fair value totaled EUR 6.1 billion and
that of financial liabilities measured at fair value EUR 16.8 billion.
— Fair values of financial instruments carried at fair value are determined using either prices
quoted in an active market, or Municipality Finance Plc’s own valuation techniques where
no active market exists. Determining fair values involves management judgements,
especially in respect of those instruments for which market-based data is not available.
— Financial assets and financial liabilities measured at fair value account for a substantial part
of the assets and liabilities in the consolidated statement of financial position. Changes in
market interest rates and foreign exchange rates may have a significant impact on the profit
or loss for the financial year and on equity. Consequently, the accounting for fair-valued
financial assets and liabilities was considered a key audit matter.
— We analysed the appropriateness of the accounting principles and the valuation
methodologies applied by Municipality Finance Plc, as well as tested key controls
over the valuation process.
— In respect of derivative instruments we considered the appropriateness of the accounting
treatment by reference to the IFRS requirements.
— As part of our year-end audit procedures we compared the fair values used in the
measurement of fair-valued financial assets and liabilities with market quotations and
other external price references, and assessed the accuracy of the valuation inputs and
the reasonableness of the assumptions and estimates used.
— Furthermore, we considered the appropriateness of the notes provided on financial assets
and financial liabilities measured at fair value.
— We involved our own IFRS and financial instruments specialists.
We have also addressed the risk of management override of internal controls. This includes
consideration of whether there was evidence of management bias that represented a risk of
material misstatement due to fraud.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Hedge accounting (notes to group financial statements 1, 2, 8, 24 and 25)
— Municipality Finance Plc applies hedge accounting to hedge against interest rate and
currency risks related to financial assets and financial liabilities, and to reduce the
accounting mismatch.
— Municipality Finance Plc applies fair value hedge accounting under IFRS 9 and fair value
portfolio hedge accounting under IAS 39.
— Due to the application of hedge accounting, the carrying amounts of those financial assets
and financial liabilities to which hedge accounting is applied, include unrealised fair value
change related to hedged risks.
— The hedge accounting process includes various accounting phases and hedge accounting
may have a significant impact on the consolidated financial statements. Accordingly, hedge
accounting was considered as key audit matter.
— We evaluated the hedge accounting practices applied for compliance with the relevant
financial reporting standards.
— We assessed the effectiveness of the hedge effectiveness testing and the appropriateness
of the related documentation prepared by Municipality Finance Plc.
— Furthermore, we considered the appropriateness of the notes provided on hedge
accounting.
— We involved our own IFRS and financial instrument specialists.
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Responsibilities of the Board of Directors and the
Managing Director for the Financial Statements
The Board of Directors and the Managing Director are
responsible for the preparation of consolidated financial
statements that give a true and fair view in accordance with
International Financial Reporting Standards (IFRS) as adopted
by the EU, and of financial statements that give a true and fair
view in accordance with the laws and regulations governing
the preparation of financial statements in Finland and
comply with statutory requirements. The Board of Directors
and the Managing Director are also responsible for such
internal control as they determine is necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the Board of Directors
and the Managing Director are responsible for assessing the
parent company’s and the group’s ability to continue as a going
concern, disclosing, as applicable, matters relating to going
concern and using the going concern basis of accounting. The
financial statements are prepared using the going concern
basis of accounting unless there is an intention to liquidate the
parent company or the group or cease operations, or there is
no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial
Statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with good auditing
practice will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial
statements.
As part of an audit in accordance with good auditing practice,
we exercise professional judgment and maintain professional
scepticism throughout the audit. We also:
— Identify and assess the risks of material misstatement of
the financial statements, whether due to fraud or error,
design and perform audit procedures responsive to
those risks, and obtain audit evidence that is sufficient
and appropriate to provide a basis for our opinion. The
risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as
fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
— Obtain an understanding of internal control relevant to
the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the parent
company’s or the group’s internal control.
— Evaluate the appropriateness of accounting policies used
and the reasonableness of accounting estimates and
related disclosures made by management.
— Conclude on the appropriateness of the Board of
Directors’ and the Managing Director’s use of the going
concern basis of accounting and based on the audit
evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant
doubt on the parent company’s or the group’s ability to
continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our
auditor’s report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the
audit evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause
the parent company or the group to cease to continue as a
going concern.
— Evaluate the overall presentation, structure and content
of the financial statements, including the disclosures, and
whether the financial statements represent the underlying
transactions and events so that the financial statements
give a true and fair view.
— Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities
within the group to express an opinion on the consolidated
financial statements. We are responsible for the direction,
supervision and performance of the group audit. We
remain solely responsible for our audit opinion.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
We communicate with those charged with governance
regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including
any significant deficiencies in internal control that we identify
during our audit.
We also provide those charged with governance with a
statement that we have complied with relevant ethical
requirements regarding independence and communicate with
them all relationships and other matters that may reasonably
be thought to bear on our independence, and where
applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the financial statements of the
current period and are therefore the key audit matters. We
describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or
when, in extremely rare circumstances, we determine that a
matter should not be communicated in our report because
the adverse consequences of doing so would reasonably
be expected to outweigh the public interest benefits of such
communication.
Other Reporting Requirements
Information on our audit engagement
KPMG Oy Ab was first appointed as the audit firm by the
Annual General Meeting in 2001, and our appointment
represents a total period of uninterrupted engagement of
22 years.
Other Information
The Board of Directors and the Managing Director are
responsible for the other information. The other information
comprises the report of the Board of Directors and the
information included in the Annual Report, but does not include
the financial statements and our auditor’s report therein. We
have obtained the report of the Board of Directors prior to the
date of this auditor’s report, and the Annual Report is expected
to be made available to us after that date. Our opinion on the
financial statements does not cover the other information.
In connection with our audit of the financial statements, our
responsibility is to read the other information identified above
and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be
materially misstated. With respect to the report of the Board of
Directors, our responsibility also includes considering whether
the report of the Board of Directors has been prepared in
accordance with the applicable laws and regulations.
In our opinion, the information in the report of the Board of
Directors is consistent with the information in the financial
statements and the report of the Board of Directors has
been prepared in accordance with the applicable laws and
regulations.
If, based on the work we have performed on the other
information that we obtained prior to the date of this auditor’s
report, we conclude that there is a material misstatement of
this other information, we are required to report that fact.
We have nothing to report in this regard.
Other Opinion
We support that the financial statements should be adopted.
The proposal by the Board of Directors regarding the use of
the profit shown in the balance sheet and the profit distribution
is in compliance with the Limited Liability Companies Act.
We support that the Members of the Board of Directors and
the Managing Director should be discharged from liability for
the financial period audited by us.
Helsinki 10
th
February 2023
KPMG OY AB
TIIA KATAJA
Authorised Public Accountant, KHT
/
Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
To the Board of Directors of Municipality Finance Plc
We have undertaken a reasonable assurance
engagement in respect of whether the consolidated
financial statements for the year ended 31 December,
2022 included in the digital financial statements
529900HEKOENJHPNN480-2022-12-31-en.zip of
Municipality Finance Plc (Business ID 1701683-4 ) have
been marked up with iXBRL markups in accordance with
the requirements of Article 4 of EU Delegated Regulation
2018/815 (ESEF RTS).
The Responsibility of the Board of Directors and
Managing Director
The Board of Directors and Managing Director are
responsible for preparing the report of the Board of Directors
and financial statements (ESEF financial statements)
that comply with the requirements of ESEF RTS. This
responsibility includes:
— preparation of ESEF financial statements in XHTML
format in accordance with Article 3 of the ESEF RTS
— marking up the primary statements and the notes to the
consolidated financial statements, and the company
identification data included in the ESEF financial
statements with iXBRL tags in accordance with
Article 4 of the ESEF RTS; and
— ensuring consistency between ESEF financial
statements and audited financial statements.
The Board of Directors and the Managing Director are also
responsible for such internal control as they deem necessary
to prepare the ESEF financial statements in accordance with
the requirements of the ESEF RTS.
Auditor’s Independence and Quality Management
We are independent of the company in accordance with the
ethical requirements applicable in Finland, which apply to
the engagement we have performed, and we have fulfilled
our other ethical responsibilities in accordance with these
requirements.
The auditor applies International Standard on Quality
Management ISQM 1, which requires the firm to design,
implement and operate a system of quality management
including policies or procedures regarding compliance with
ethical requirements, professional standards and applicable
legal and regulations requirements.
Auditor’s Responsibility
In accordance with the Engagement Letter our responsibility
is to express an opinion on whether the marking up of the
consolidated financial statements included in the ESEF
financial statements comply in all material respects with the
Article 4 of the ESEF RTS. We conducted our reasonable
assurance engagement in accordance with International
Standard on Assurance Engagements 3000.
Independent Auditor’s Reasonable Assurance Report on
Municipality Finance Plc’s ESEF Financial Statements
This document is an English translation of the Finnish Independent Auditor’s Reasonable Assurance report. Only the Finnish version of the report is legally binding.
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
The engagement involves procedures to obtain evidence
whether;
— the primary statements of the consolidated financial
statements included in the ESEF financial statements
are, in all material respects, marked up with iXBRL tags in
accordance with Article 4 of the ESEF RTS, and;
— whether the notes to the consolidated financial
statements and the company identification data included
in the ESEF financial statements data, have been marked
up, in all material respects, with iXBRL tags in accordance
with Article 4 of the ESEF RTS; and
— whether the ESEF financial statements and the audited
financial statements are consistent with each other.
The nature, timing and the extent of procedures selected
depend on practitioner’s judgement. This includes the
assessment of the risks of material departures from the
requirements set out in the ESEF RTS, whether due to fraud
or error.
We believe that the evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Opinion
In our opinion, the primary statements of the consolidated
financial statements, the notes to the consolidated financial
statements and the company identification data included in
the ESEF financial statements of Municipality Finance Plc
identified as 529900HEKOENJHPNN480-2022-12-31-en.zip
for the year ended 31 December, 2022 are, in all material
respects, marked up in compliance with the ESEF Regulatory
Technical Standard.
Our audit opinion on the audit of the consolidated financial
statements of Municipality Finance Plc for the year ended
31 December, 2022 is set out in our Auditor’s Report dated
10 February, 2023. In this report, we do not express any audit
opinion or other assurance conclusion on the consolidated
financial statements.
Helsinki 6 March, 2023
Tiia Kataja
Authorised Public Accountant, KHT
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Report of the Board of Directors Consolidated Financial Statements Parent Company’s Financial Statements
Municipality Finance Plc • Annual Report 2022
Name of reporting entity or
other means of identification
Municipality Finance Group
Domicile of entity Helsinki
Legal form of entity Public limited liability company
Country of incorporation Finland
Address of entity’s registered office Jaakonkatu 3 A, 00100 Helsinki
Principal place of business Finland
Description of nature of entity’s
operations and principal activities
Municipal Finance is a credit institution owned by municipalities, Keva and the state, which
provides diverse financial services to the municipal sector and social housing production.
Name of parent entity Municipality Finance Plc
Name of ultimate parent of group Municipality Finance Plc
Municipality Finance Plc
Jaakonkatu 3 A, P.O. Box 744
00101 Helsinki
Tel. +358 9 6803 5666
www.munifin.fi
info@munifin.fi
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