Municipality Finance Plc

Municipality Finance Plc Financial Statements Bulletin 1 January–31 December 2025

Municipality Finance Plc
Financial Statements Bulletin
11 February 2026 at 2:00 pm (EET)

Municipality Finance Plc Financial Statements Bulletin 1 January–31 December 2025

In brief: MuniFin Group in 2025

• The Group’s net operating profit excluding unrealised fair value changes* decreased by 1.5% (+2.9%) in January–December and amounted to EUR 178 million (EUR 181 million). Net interest income* was at the same level as in the year before and totalled EUR 260 million (EUR 260 million). Higher expenses compared to the comparison period weakened the net operating profit excluding unrealised fair value changes.
• Net operating profit* amounted to EUR 193 million (EUR 166 million). Unrealised fair value changes amounted to EUR 14 million (EUR -16 million) in the financial year. Unrealised fair value changes were influenced in particular by changes in market rates and credit risk spreads in the Group’s main funding markets.
• Costs* in the financial year amounted to EUR 86 million (EUR 81 million). Expenses increased mainly due to the rise in HR and administrative costs as well as in commission fee expenses.
• The Group’s leverage ratio remained at a strong level, standing at 13.1% (12.3%) at the end of December.
• At the end of December, the Group’s CET1 capital ratio was very strong at 94.0% (107.7%). The ratio was pulled down by the new CRR III regulation that was applied on 1 January 2025, resulting in a decline in the capital ratio approximately by 10 percentage points, mainly due to the increase in credit valuation adjustment risk (CVA VaR). The Group’s CET1 capital ratio was nevertheless over six times the required minimum of 15.1% (15.0%), taking capital buffers into account.
• Long-term customer financing (long-term loans and leased assets) excluding fair value changes* totalled EUR 38,510 million (EUR 35,787 million) at the end of December and saw an increase of 7.6% (8.6%). New long-term customer financing* increased by 0.6% (17.1%) in January–December 2025 and amounted to EUR 5,088 million (EUR 5,056 million). Short-term customer financing* totalled EUR 1,895 million (EUR 1,825 million).
• Of all long-term customer financing, the amount of green finance* aimed at environmentally sustainable investments totalled EUR 9,111 million (EUR 6,817 million) and the amount of social finance* aimed at investments promoting equality and communality totalled EUR 2,775 million (EUR 2,536 million) at the end of December. The amount of the newly introduced sustainability-linked loan totalled EUR 710 million (EUR 38 million). The total amount of sustainable finance increased by 34.1% (33.6%) from the previous year. The ratio of sustainable finance to long-term customer financing excluding unrealised fair value changes* grew by 6.5 percentage points to 32.7% (26.2%).
• In 2025, new long-term funding* reached EUR 10,019 million (EUR 8,922 million). At the end of December, the total funding* was EUR 49,117 million (EUR 46,737 million), of which long-term funding* made up EUR 45,042 million (EUR 43,328 million).
• The Group’s total liquidity* is very strong, standing at EUR 11,636 million (EUR 11,912 million) at the end of the financial year. The Liquidity Coverage Ratio (LCR) stood at 225% (339%) and the Net Stable Funding Ratio (NSFR) at 121% (124%) at the end of the year.
• The Board of Directors proposes to the Annual General Meeting to be held in spring 2026 a dividend of EUR 1.83 per share, totalling EUR 71.5 million. The total dividend payment in 2025 was EUR 1.86 per share, totalling EUR 72.7 million.

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 2024.
Comparison figures deriving from the balance sheet and other cross-sectional items are based on the figures of 31 December 2024 unless otherwise stated. All figures presented in the Financial Statements Bulletin are those of MuniFin Group, unless otherwise stated.
* Alternative performance measure.

Key figures (Group)

* Alternative performance measure.
** Change in ratio.
*** The capital ratios at 31 December 2025 have been calculated in accordance with the CRR III regulation. The figures for the comparative periods have not been adjusted.

Comment on the 2025 financial year by President and CEO Esa Kallio

“Our business operations progressed very much in line with expectations in 2025. In funding, the year was even better than expected. Despite the uncertain market sentiment, investor demand remained strong and our benchmark bonds and other funding arrangements were highly successful. As a result, the costs of funding came down by the end of the year from the elevated level of the beginning of 2025.

Our customers’ demand for financing remained largely unchanged from the previous year. The year was difficult for municipal finances as Finland’s anticipated economic growth stalled and the employment service costs transferred from the government to municipalities proved higher than expected. Nevertheless, municipalities’ adjustment measures were effective and kept their financing needs steady despite extensive investment programmes. Sustaining growth in large cities, however, will require continued investment.

In affordable social housing, the demand for financing exceeded our expectations, although government interest subsidy loan authorisations were cut by half a billion euros from 2024. The government has proposed sizeable cuts to the loan authorisations also in the coming years. The Finnish system for affordable social housing is an internationally renowned success story. Undermining it is short-sighted; instead of running it down, we should be ramping it up and sharpening it. Housing construction also has a significant impact on Finland’s economic development through its employment effects and the spillover and multiplier effects rippling over to other sectors.

One of the highlights of our year was the establishment of our Happiness Grant. Our customers strengthen these pillars of happiness every day through their work and our financing. The Happiness Grant is our way of shining a spotlight on their efforts and inspiring dialogue on how society can maintain and strengthen the structures on which we can build an even better and more equal Finland where everyone is safe and future growth is possible.”

Information on the Group results

The sum of individual results may differ from the displayed total due to rounding.
Changes of more than 100% are shown as >100.

The Group’s net operating profit excluding unrealised fair value changes

MuniFin Group’s core business operations continued to be stable in 2025. New long-term customer financing remained on the previous year’s level. The Group’s financial standing remained strong.

The Group’s net operating profit excluding unrealised fair value changes decreased by 1.5% (+2.9%) and amounted to EUR 178 million (EUR 181 million). The decrease was caused by increased expenses.

The Group’s income excluding unrealised fair value changes was EUR 265 million (EUR 262 million) and grew by 1.2% (1.1%). Net interest income remained on the previous year’s level, totalling EUR 260 million (EUR 260 million).

Other income totalled EUR 5.3 million (EUR 2.0 million). It consisted mainly of income from MuniFin’s digital services, net result from FX differences and net result on unwinding derivatives in hedge accounting. Net result from FX differences was EUR -1,.5 million (EUR +0.5 million) in the reporting period. Realised income from derivative contracts amounted to EUR 4.8 million. There were none in the comparison period. At 2.0% (0.8%), other income relative to income excluding unrealised fair value changes forms only a minor part of the Group’s income.

The Group’s expenses totalled EUR 86 million (EUR 81 million), up by 6.6% (-1.9%) from the year before. Expenses increased mainly due to the rise in HR and administrative costs as well as in commission fee expenses.

Commission expenses increased by 7.4% (8.2%) and totalled EUR 18 million (EUR 17 million), of which EUR 16 million (EUR 14 million) consisted of the guarantee commission collected by the Municipal Guarantee Board for guaranteeing MuniFin’s funding.

MuniFin Group’s commission fee expenses may increase significantly in 2026 based on the decision made in 2025 by the Municipal Guarantee Board to raise the guarantee fee payable to the Board. The guarantee fee is paid on MuniFin’s funding that is guaranteed by the Board. The Municipal Guarantee Board has decided to increase the guarantee fee to more than three times its previous level, calculated on the amount of guaranteed funding. MuniFin does not consider the increase reasonable, and the matter requires further clarification. The risks related to MuniFin’s operations have not changed; the Group’s risk position remains stable, and it has excellent financial buffers to withstand potential disruptions in the operating environment. There have also been no changes in the credit rating agencies’ assessments of the company.

HR and administrative expenses grew by 13.2% (7.2%) and reached EUR 49 million (EUR 44 million) Of this, personnel expenses comprised EUR 23 million (EUR 21 million) and other administrative expenses EUR 26 million (EUR 23 million). The average number of employees in the Group was 185 (187) during the financial year. Other items in administrative expenses grew by 15.8%% (12.4%), mainly due to the increased costs of maintaining and developing information systems.

During the financial year, depreciation on tangible and intangible assets totalled EUR 4.0 million (EUR 6.0 million) and they decreased by 34.1% (-7.8%).

Other operating expenses increased by 2.6% (-27.0%) and were EUR 14 million (EUR 14 million). Other operating expenses excluding fees collected by authorities were EUR 11 million (EUR 11 million).

Credit losses and impairments on financial assets were EUR 0.9 million (EUR 0.3 million) in the income statement. This item consists of expected credit losses (ECL). The Group updated its forward-looking macro scenarios during the financial year. At the end of June 2025, the Group’s management assessed the need for an ECL management overlay, as some housing sector customers were still experiencing cash flow issues due to the oversupply and regional underutilisation of premises. The management decided to recognise an EUR 0.1 million additional discretionary provision based on the group-specific assessment. At the end of 2025, the management reassessed the situation and decided to release the previous provision and recognised a new additional discretionary provision of EUR 0.2 million based on the group-specific assessment, grounded in the evaluation of customers’ cash flow sufficiency in 2026.

The Group’s overall credit risk position in customer financing has remained low. The amount of forborne loans was EUR 658 million (EUR 561 million), while non-performing exposures amounted to EUR 454 million (EUR 292 million) at the end of the year. These non-performing exposures represented 1.1% (0.8%) of total customer exposures. At the end of December, the Group had EUR 133 million (EUR 13 million) in receivables due to the insolvency of customers, for which the collateral realisation process is ongoing, or the credit receivable is due for payment by the guarantor. Individual housing sector customers have encountered serious financial difficulties. However, due to the collateral and guarantee arrangements securing MuniFin’s receivables, no credit losses are expected from these exposures.

All the Group’s customer financing receivables are from Finnish municipalities, joint municipal authorities, wellbeing services counties or joint county authorities, or accompanied by a securing municipal, joint municipal authority, wellbeing services county or joint county authority guarantee or a state deficiency guarantee supplementing real estate collateral, and therefore no final credit losses will arise. According to the management’s assessment, all receivables from customers will be fully recovered. During the Group’s history of over 35 years, it has never recognised any final credit losses in its customer financing.

The credit risk of the Group’s liquidity portfolio has likewise remained at a low level, and the average credit rating of debt securities in the portfolio is AA+ (AA+).

The Group’s profit and unrealised fair value changes

The Group’s net operating profit was EUR 193 million (EUR 166 million). Unrealised fair value changes increased the Group’s net operating profit by EUR 14 million (in 2024: decreased by EUR 16 million). In January–December, unrealised fair value changes in hedge accounting amounted EUR -5.6 million to (EUR -12 million) and unrealised net result on financial assets and liabilities through profit or loss to EUR 20 million (EUR -3.8 million).

The Group’s effective tax rate in the financial year was 20.0% (19.9%). Taxes in the consolidated income statement amounted to EUR 39 million (EUR 33 million). After taxes, the Group’s profit for the financial year was EUR 154 million (EUR 133 million).

The Group’s full-year return on equity (ROE) was 7.9% (7.2%). Excluding unrealised fair value changes, the ROE was 7.4% (7.9%).

The Group’s other comprehensive income includes unrealised fair value changes of EUR -113 million (EUR 169 million). During the financial year, the most significant item affecting the other comprehensive income was net change in fair value due to changes in own credit risk of financial liabilities designated at fair value through profit or loss totalling EUR -78 million (EUR 137 million). The cost-of-hedging amounted to EUR -34 million (EUR 30 million). Net change in fair value of financial assets at fair value through other comprehensive income was EUR -1.2 million (EUR 1.7 million).

On the whole, unrealised fair value changes net of deferred tax affected the Group’s equity by EUR -79 million (EUR 122 million) and CET1 capital net of deferred tax in capital adequacy by EUR -18 million (EUR 13 million). The cumulative effect of unrealised fair value changes on the Group’s own funds in capital adequacy calculations was EUR 40 million (EUR 58 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 rates and credit risk spreads in the Group’s main funding markets.

In accordance with its risk management principles, the 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 holds financial instruments and their hedging derivatives almost always until the maturity date. The counterparty credit risk related to derivatives is comprehensively covered by collateral management. 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 and subsidiary company’s results

In 2025, MuniFin’s net interest income amounted to EUR 260 million (EUR 260 million) and net operating profit to EUR 193 million (EUR 166 million).

The turnover of MuniFin’s subsidiary company, Kuntarahoituksen digitaaliset palvelut Oy, was EUR 0.3 million (EUR 0.4 million), and its net operating result amounted to EUR 0.0 million (EUR -0.5 million). The subsidiary was formerly called Financial Advisory Services Inspira Plc and used to offer advisory services to MuniFin’s customers. The Group discontinued these services in 2024, and the
subsidiary company now provides some of the digital added value services MuniFin offers to its customers.

The Group’s financial performance in July–December

In the second half of 2025, the Group’s net operating profit excluding unrealised fair value changes amounted to EUR 100 million (Jul–Dec 2024: EUR 92 million), increased by 8.6% compared to the year before. Net interest income totalled EUR 136 million (Jul–Dec 2024: EUR 132 million) and costs EUR 42 million (Jul–Dec 2024: EUR 40 million). Unrealised fair value changes increased the net operating profit by EUR 15 million (in Jul–Dec 2024: weakened by EUR 31 million). The Group’s net operating profit amounted to EUR 115 million in July–December (Jul–Dec 2024: EUR 61 million).

In the second half of the year, the Group’s net operating profit excluding unrealised fair value changes increased by 27.1% from the first half. Net interest income went up by 10.0% from the first half of the year. Costs amounted to EUR 42 million in July–December and to EUR 44 million in January–June. The Group’s net operating profit totalled EUR 115 million in July–December, increasing by 47.0% from January–June. In the second half of the year, unrealised fair value changes affected the net operating profit by EUR 15 million, while in the first half of the year their effect was EUR -0.6 million.

Outlook for 2026

The euro area economic outlook for 2026 has strengthened over the past six months. Despite uncertainties in global trade and geopolitics, strong momentum in the service sectors has kept unemployment low and private consumption on the rise. The ECB’s interest rate cuts have also given investments a tailwind, with activity turning towards an upward trend.

Even so, Europe’s economy is facing a multitude of risks. The geopolitical environment remains unstable, and the ultimate effects of Donald Trump’s trade policy are still highly uncertain. The US economy is at something of a crossroads, where a normal slowdown in growth could turn into a deeper-than-expected downturn. China, in turn, is grappling with increasingly severe structural challenges in its economy. In addition to challenges in the external operating environment, Europe is burdened by mounting public debt, a weak competitive position in technological transitions and security risks that are driving a much higher share of resources into defence than before.

Euro area monetary policy is not expected to undergo any major changes next year. Economic recovery is continuing at a moderate – if uncertain – pace, with inflation returning close to the ECB’s target. Markets are expecting the ECB’s key interest rates to remain stable in 2026. Public projects aimed at strengthening defence, security of supply and infrastructure are increasing governments’ borrowing needs, which may continue to exert some upward pressure on long-term interest rates. A potential start to the reconstruction of Ukraine would have a similar effect. As the cyclical recovery
continues, monetary policy may tighten moderately from 2027 onwards, a development that market interest rates may begin to anticipate in 2026.

Finland’s economic turnaround has been slower than expected, but 2026 is expected to bring more growth-supporting factors. The decline in employment is expected to halt and domestic consumption to pick up gradually. A further growth boost is coming from green transition investment projects and major cruise ship and icebreaker deals. At the same time, public deficit is slowly coming down.

Despite municipalities’ determined fiscal adjustment measures, their funding deficit is likely to grow considerably in 2026. Municipal finances are strained by central government transfer cuts resulting from the balancing of health and social services reform transfers, personnel costs increased by rises in wages and the sizeable investment needs of larger cities. High unemployment is also driving up employment-related costs and putting a strain on tax revenues.

The housing market and construction sector remain weak spots in the economy, likely to offer little lift in 2026. Privately financed new construction is unlikely to pick up substantially, as the number of vacant rentals and unsold homes remains exceptionally high. State-subsidised housing production is set to decline sharply due to a significant reduction in interest subsidy loan authorisations.

MuniFin Group’s commission expenses may increase significantly in 2026 based on the decision made in 2025 by the Municipal Guarantee Board (MGB) to raise the guarantee fee payable to the MGB. The guarantee fee is paid for MuniFin’s funding that is guaranteed by the MGB. The MGB has decided to increase the guarantee fee more than three times calculated from the guaranteed funding.

The Group’s risk position is expected to remain stable. Also, 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.

Municipality Finance Plc

Further information:

Esa Kallio, President and CEO, tel. +358 50 337 7953

Erika Fredman, Executive Vice President, Finance, CFO, tel. +358 50 588 0263

MuniFin (Municipality Finance Plc) is one of Finland’s largest credit institutions. The owners of the company include Finnish municipalities, the public sector pension fund Keva and the State of Finland. The Group’s balance sheet totals over EUR 55 billion. 

MuniFin’s customers include municipalities, joint municipal authorities, wellbeing services counties, corporate entities under their control, and non-profit social housing organisations. Lending is used for environmentally and socially responsible investment targets such as public transportation, sustainable buildings, hospitals and healthcare centres, schools and day care centres, and homes for people with special needs. 

MuniFin’s customers are domestic, but the company operates in a completely global business environment. The company is an active Finnish bond issuer in international capital markets and the first Finnish green and social bond issuer. The funding is exclusively guaranteed by the Municipal Guarantee Board. 
 
Read more: www.munifin.fi 

Attachment

• MuniFin_Financial_Statements_Bulletin_2025