MUNICIPALITY FINANCE PLC (Kuntarahoitus Oyj)

Transcription

1 Supplemental Offering Circular dated 14 September 2015 MUNICIPALITY FINANCE PLC (Kuntarahoitus Oyj) (Public limited liability company incorporated in the Republic of Finland) 25,000,000,000 Programme for the Issuance of Debt Instruments Guaranteed by THE MUNICIPAL GUARANTEE BOARD (Kuntien takauskeskus) (Established as a public law institution under the laws of the Republic of Finland) This supplement (the "Supplement") to the offering circular dated 6 May 2015 (the "Offering Circular") is prepared in connection with the 25,000,000,000 Programme for the Issuance of Debt Instruments established by Municipality Finance Plc (the "Issuer" or "Municipality Finance") and the Municipal Guarantee Board (the "Guarantor" or the "MGB"). Terms defined in the Offering Circular have the same meaning when used in this Supplement. This Supplement is supplemental to, and should be read in conjunction with, the Offering Circular and any other supplements to the Offering Circular issued by the Issuer and the Guarantor from time to time and, in relation to any Tranche of Notes which is the subject of Final Terms, must be read and construed together with the relevant Final Terms. The Offering Circular comprises neither a prospectus for the purposes of Part VI of the Financial Services and Markets Act 2000 (as amended) (the "FSMA"), a base prospectus for the purposes of Article 5.4 of Directive 2003/71/EC, as amended (the "Prospectus Directive"), nor listing particulars given in compliance with the listing rules (the "Listing Rules") made under Part VI of the FSMA by the United Kingdom Financial Conduct Authority in its capacity as competent authority under the FSMA (the "FCA"). Accordingly, this Supplement does not constitute a base prospectus supplement for the purposes of Article 16 of the Prospectus Directive or supplementary listing particulars for the purposes of Article 81 of the FSMA. The Issuer and the Guarantor accept responsibility for the information contained in this Supplement. To the best of the knowledge and belief of the Issuer and the Guarantor (which have taken all reasonable care to ensure that such is the case), the information contained in this Supplement is in accordance with the facts and does not omit anything likely to affect the import of such information. To the extent that there is any inconsistency between (a) any statements in or incorporated by reference into this Supplement and (b) any statement in or incorporated by reference into the Offering Circular, the statements in this Supplement will prevail. Save as disclosed in this Supplement, no other significant new factor, material mistake or inaccuracy relating to information included in the Offering Circular has arisen or been noted since the publication of the Offering Circular v

2 AMENDMENTS TO THE OFFERING CIRCULAR With effect from the date of this Supplement, the information appearing in the Offering Circular shall be supplemented in the manner described below. Interim Report 2015 On 11 August 2015, the Issuer published its half-year report for the six months ending 30 June 2015 (the "Interim Report 2015"). The Interim Report 2015 contains unaudited consolidated financial statements. By virtue of this Supplement, the unaudited consolidated income statement, the balance sheet, the statement of changes in equity, the cash flow statement and the related notes of the Interim Report 2015 are set out in the annex hereto, and such annex forms part of this Supplement and the Offering Circular. Exchange Rates The section headed "Exchange Rates" on page 6 of the Offering Circular shall be deemed to be supplemented by the addition of the following information. Low High (U.S. dollars per euro) May June July August September 2015 (through to 10) The euro versus the U.S. dollar European Central Bank exchange rate on 10 September 2015 was U.S.$ per Euro Risk Factors The section headed "Risk Factors" starting on page 12 of the Offering Circular shall be deemed to be supplemented by the addition of the following information. The Issuer may be subject to statutory resolution The risk factor entitled "The Issuer may be subject to statutory resolution" starting on page 15 of the Offering Circular shall be deemed to be supplemented by the addition of the following information after the fourth paragraph of the risk factor. As a result of the renewed bank regulation, the (Finnish) Act on Credit Institutions requires the Finnish Financial Supervisory Authority (FIN-FSA) to define which credit institutions are significant for the financial system in Finland. According to the decision published on July 6, 2015, FIN-FSA listed the Issuer among these institutions. The credit institutions significant for the financial system are divided into five different classes which determine the level of additional capital the institutions will be required to maintain (varying between 0 to 2 percent). The Issuer was categorized into Class 2 which means that a capital add-on of 0.5 percent is required. The Issuer s ratio of total own funds to risk-weighted assets was percent at the end of 2014, which fulfils the requirement. In addition, the Act sets some special requirements for the corporate governance of the credit institutions significant for the financial system. The Issuer s corporate governance policies already comply with these requirements. The FIN-FSA assessment of the significant credit institutions is based on the Act and the indicators published by the European Banking Authority (EBA). Regulatory supervision of the Issuer may be transferred to the ECB and the Issuer may become subject to the European Single Resolution Mechanism The risk factor entitled "Regulatory supervision of the Issuer may be transferred to the ECB and the Issuer may become subject to the European Single Resolution Mechanism" starting on page 16 of the Offering Circular shall be deemed to be supplemented by the addition of the following information after the third paragraph of the risk factor. Due to the systemic significance of the Issuer, the European Central Bank ECB has started in the summer 2015 a comprehensive assessment of its operations. The examination of the Issuer s resilience and v

3 positions consists of an asset quality review and a forward-looking stress test. The comprehensive assessment is a process related to the ECB s Single Supervisory Mechanism and to be completed by the end of At the end of 2014, the Issuer was Finland s third largest credit institution with a balance sheet of over 30 billion euros. The Group may be adversely affected by resulting changes in regulation The risk factor entitled "The Group may be adversely affected by resulting changes in regulation" starting on page 17 of the Offering Circular shall be deemed to be supplemented by the addition of the following information after the first paragraph of the risk factor. The Government of Finland is currently planning a large reform of the Finnish social and healthcare system. Currently it is not possible to estimate the impact of this reform for the Issuer and the municipal sector in Finland, as there is no detailed proposal given yet. Capitalisation and Indebtedness The section headed "Capitalisation and Indebtedness" starting on page 71 of the Offering Circular shall be deemed to be supplemented by the addition of the following information. The following table sets forth consolidated cash and cash equivalents and capitalisation (including short term debt, long-term debt and shareholders' equity) of the Issuer as at 30 June The information in this table should be read in conjunction with "Management's Discussion and Analysis of Financial Position and Results of Operations of the Group", the Group Consolidated Financial Statements and the notes to those statements included elsewhere in the Offering Circular and the Interim Report 2015 and the notes to that statement included elsewhere in this Supplement. As at 30 June 2015 (Euro '000) Cash and cash equivalents... 1,438,127 Indebtedness: Liabilities to credit institutions... 5,017,693 Liabilities to the public and public sector entities ,825 Debt securities issued... 25,491,290 Total Indebtedness... 31,454,808 Shareholders' equity Share capital... 42,583 Reserve fund Fair value reserve... 28,215 Reserve for invested non-restricted equity... 40,366 Retained earnings ,166 Total equity attributable to parent company equity holders ,607 Total capitalisation (1)... 33,546,542 (1) Total capitalisation is the sum of total indebtedness and total equity. Selected Financial Information Relating to the Group The section headed "Selected Financial Information Relating to the Group" starting on page 72 of the Offering Circular shall be deemed to be supplemented by the addition of the following information v

4 INCOME STATEMENT DATA Consolidated Income Statement For the six months ended 30 June (Euro '000) Interest income... 84, ,939 Interest expense... (208) (30,926) NET INTEREST INCOME... 84,100 79,012 Commission income... 2,670 1,786 Commission expense... (1,767) (1,823) Net income from securities and foreign exchange transactions... 1,086 (3,048) Net income from available-for-sale financial assets... 2, Net income from hedge accounting... 1,660 (2,490) Other operating income Administrative expenses... (8,210) (6,686) Depreciation and impairment on tangible and intangible assets... (748) (728) Other operating expenses... (2,828) (2,843) OPERATING PROFIT... 78,283 63,360 Income taxes... (15,691) (12,705) PROFIT FOR THE FINANCIAL PERIOD... 62,591 50,655 Profit attributable to: Equity holders of the parent company... 62,480 50,575 Non-controlling interest Consolidated Statement of Comprehensive Income For the six months ended 30 June (Euro '000) Profit for the financial period... 62,591 50,655 Available-for-sale financial assets (fair value reserve):... Net change in fair value... (1,777) 8,998 Net amount transferred to profit or loss... (1,642) (133) IAS39 Reclassification adjustment Taxes relating to components of other comprehensive income (1,782) TOTAL COMPREHENSIVE INCOME... 59,893 57,784 Total comprehensive income attributable to: Equity holders of the parent company... 59,782 57,704 Non-controlling interest v

5 CONSOLIDATED FINANCIAL POSITION DATA As at 30 June 2015 (Euro '000) ASSETS Cash and cash equivalents... 1,438,127 Loans and advances to credit institutions ,951 Loans and advances to the public and public sector entities... 19,531,227 Debt securities... 8,279,826 Shares and participations... 9,752 Derivative contracts... 3,729,904 Intangible assets... 5,499 Tangible assets... 2,464 Other assets... 5,172 Accrued income and prepayments ,444 TOTAL ASSETS... 33,693,366 LIABILITIES AND EQUITY LIABILITIES Liabilities to credit institutions... 5,017,693 Liabilities to the public and public sector entities ,825 Debt securities issued... 25,491,290 Derivative contracts... 1,235,463 Other liabilities... 3,596 Accrued expenses and deferred income ,029 Subordinated liabilities... 36,257 Deferred tax liabilities ,394 TOTAL LIABILITIES... 33,039,547 EQUITY AND NON-CONTROLLING INTEREST Share capital... 42,583 Reserve fund Fair value reserve... 28,215 Reserve for invested non-restricted equity... 40,366 Retained earnings ,166 Total equity attributable to parent company equity holders ,607 Non-controlling interest TOTAL EQUITY AND NON-CONTROLLING INTEREST ,819 TOTAL LIABILITIES AND EQUITY... 33,693,366 CONSOLIDATED CASH FLOW DATA For the six months ended 30 June (Euro '000) Cash flow from operating activities ,003 4,476 Cash flow from investing activities... (1,489) (390) Cash flow from financing activities... (1,206) (10,000) Change in cash funds ,307 (5,914) Cash funds at 1 January... 3,181,659 1,885,173 Cash funds at period end... 3,811,966 1,879, v

6 KEY PERFORMANCE INDICATORS As at and for the six months ended 30 June Turnover (1) (meur) Net interest income (meur) % of turnover % 74.28% Operating profit (meur) % of turnover % 59.57% Cost-to-income ratio (2) x 0.16x Loan portfolio (3) (meur)... 19,378 18,365 Funding portfolio (4) (meur)... 28,817 25,477 Total assets (meur)... 33,693 28,211 Return on equity (%) (ROE) (5) % 20.30% Return on assets (%) (ROA) (6) % 0.37% Equity ratio (%) (7) % 1.87% Tier 1 capital (meur) Own funds (meur) Ratio of Tier 1 capital to risk weighted assets (%) (8) % 25.70% Ratio of total own funds to risk-weighted assets (%) (9) % 29.04% (1) Turnover is calculated as the sum of interest income, commission income, net income from securities and foreign exchange transactions, net income from available-for-sale financial assets, net income from hedge accounting and other operating income. (2) (3) (4) (5) (6) (7) (8) (9) Cost-to-income ratio is calculated as the sum of commission expenses, administrative expenses, depreciations and other operating expenses divided by the sum of net interest income, commission income, net income from securities and foreign exchange transactions, net income from available-forsale financial assets, net income from hedge accounting and other operating income. Loan portfolio is calculated as loans and advances to the public and public sector entities less leasing receivables. Funding portfolio is calculated as the sum of liabilities to credit institutions, liabilities to the public and public sector entities and debt securities issued less collateral received. Return on equity (per cent.) (ROE) is calculated as operating profit less income taxes divided by average total equity and non- controlling interest (average of the beginning of the year and the end of the year). Return on assets (per cent.) (ROA) is calculated as operating profit less income taxes divided by average total assets (average of the beginning of the year and the end of the year). Equity ratio (per cent.) is calculated as the sum of total equity and non-controlling interest and appropriations less deferred tax liabilities divided by total assets. Capital adequacy ratio, Tier 1 capital (per cent.) equals total Tier 1 capital divided by risk weighted assets. Capital adequacy ratio (per cent.) equals total own funds divided by risk weighted assets v

7 Management's Discussion and Analysis of Financial Position and Results of Operations of the Group The section headed "Management's Discussion and Analysis of Financial Position and Results of Operations of the Group" starting on page 75 of the Offering Circular shall be deemed to be supplemented by the addition of the following information. Overview The Issuer's fully paid-up capital was approximately Euro 42.6 million and its own funds amounted to approximately Euro million at 30 June The Issuer's total assets on 30 June 2015 were approximately Euro 33.7 billion, of which the lending portfolio represented approximately Euro 19.4 billion. The Issuer's five largest shareholders at 30 June 2015 were Keva (formerly named "The Local Government Pensions Institution") (30.66 per cent.), the Republic of Finland (16.00 per cent.), City of Helsinki (10.41 per cent.), City of Espoo (3.96 per cent.) and VAV Asunnot Oy (City of Vantaa) (2.47 per cent.). Significant Factors Affecting Operating and Financial Results for the Six Months Ended 30 June 2015 The volume of the Group's lending and its market share Customers demand for loans was higher during the first half of 2015 compared to the same period the previous year. The total volume of tender requests received by the Group in the six months ended 30 June 2015 was EUR 2,833 million (EUR 2,146 million in the six months ended 30 June 2014). However, the total amount of new loans made in the six months ended 30 June 2015 was lower than in the same period last year at EUR 1,173 million (EUR 1,245 million in the six months ended 30 June 2014). As of 30 June 2015, the Group's long-term loan portfolio stood at EUR 19,378 million. The Group has concluded a number of facility agreements for leasing services and the Group believes that the prospects for expanding leasing operations are good, as financial leasing is seen as a viable alternative to loans, particularly for procurement by municipalities, municipal corporations engaging in municipal operations and hospital districts. The Group's leasing portfolio stood at EUR 153 million as of 30 June 2015 (31 December 2014: EUR 133 million). As of 30 June 2015, the Group had EUR 1,182 million in municipal commercial paper and municipal company commercial paper on its balance sheet (31 December 2014: EUR 845 million). During the six months ended 30 June 2015, customers acquired EUR 4,736 million in financing under short-term programmes. Fluctuations in interest rates, currency exchange rates and the valuation of derivatives The Group's funding portfolio as at 30 June 2015 was Euro 28,817 million. Of this total amount as at 30 June 2015, 16 per cent. was denominated in euros and 84 per cent. in foreign currencies. However, the Group hedges against all currency risks by using derivative contracts to translate foreign currency denominated funding into euros. Also, while the Group's lending and funding is in both floating and fixed interest rates, the Group also hedges all of its fixed rate interest exposure (both borrowings and loans to customers) to floating rate. As a result of these activities, the Group had derivative contracts with a nominal value of Euro 62,809.9 million as at 30 June The following table sets forth, as of the dates indicated, information on the derivative contracts of the Group: v

8 Nominal value As at 30 June 2015 Fair Value Total Positive Negative Euro ('000) Contracts not included in hedge accounting Interest rate derivatives Interest rate swaps... 6,040, ,637 (144,644) Interest rate options ,547 2,799 (2,798) Currency derivatives Cross currency interest rate swaps... 23,715 1,370 (1,371) Forward exchange contracts... 1,059,526 39,275 (8,395) Equity derivatives... 1,742,330 81,398 (81,398) Other derivatives ,690 24,824 (24,704) Total... 9,213, ,303 (263,310) Contracts under hedge accounting Interest rate derivatives Interest rate swaps... 32,204, ,871 (379,096) Interest rate options... 14,976 1 (192) Currency derivatives Cross currency interest rate swaps... 21,376,313 2,897,729 (592,865) Total... 53,596,263 3,438,601 (592,865) Grand total... 62,809,914 3,729,904 (1,235,463) While the Group uses derivatives only for hedging purposes, certain derivatives entered into by the Group do not qualify for hedge accounting and create volatility in the Group's income statement. This volatility is a function of the volatility of market interest rates and currency exchange rates and the related fair value changes of those derivatives which the Group must recognise on its income statement. The total nominal value of derivative contracts not included in hedge accounting under EU IFRS was Euro 9,213.7 million as at 30 June Changes in the fair value of such derivatives are recognised on the income statement during the period in which they occur as one component of the net result for the line item "Net income from securities and foreign exchange transactions". Interest rate movements Interest rates which were already low at the start of 2014 began to decline further in the second half of In the first six months of 2015 interest rates have remained low and below the rates in the first six months of The chart below shows the Euribor 6-month interest rate for 2012, 2013, 2014 and the first eight months of v

9 The Group's interest income declined from 2011 to 2013 even though the volume of the Group's lending increased as well as the margin it sets on such lending. Also, the Group's interest expense declined from 2011 to 2013 even as the Group had more outstanding debt securities in 2013 than in However, during this period, the Group's net interest income increased steadily given the increase in loan volume and interest rate margin and its successful funding operations. In 2014 rates were broadly in line with 2013 although they began to fall in the second half of 2014, where they have remained in the first six months of As a result of the lower rates in the first six months of 2015 compared to the first six months of 2014 the Group's interest income and interest expense both decreased in the first six months of 2015 compared to the same period in Should interest rates fall even further, the Group may experience declines in its interest income and interest expense. Conversely, should interest rates rise the Group's interest income and interest expense may rise even if there is a reduction in the volume of the lending or funding. Results of Operations The Six Months Ended 30 June 2015 Compared to the Six Months Ended 30 June 2014 The following tables set forth, as of the dates indicated, certain summary financial information about the results of the Group's operations: For the six months ended 30 June Change 2014 to 2015 (Euro '000) (%) Interest income... 84, ,939 (23.3) Interest expense... (208) (30,926) 99.3 NET INTEREST INCOME... 84,100 79, Commission income... 2,670 1, Commission expense... (1,767) (1,823) (3.1) Net income from securities and foreign exchange transactions... 1,086 (3,048) Net income from available-for-sale financial assets... 2, Net income from hedge accounting... 1,660 (2,490) Other operating income (12.5) Administrative expenses... (8,210) (6,686) (22.8) Depreciation and impairment on tangible and intangible assets... (748) (728) 2.8 Other operating expenses... (2,828) (2,843) (0.5) OPERATING PROFIT... 78,283 63, Income taxes... (15,691) (12,705) 23.5 PROFIT FOR THE FINANCIAL PERIOD... 62,591 50, Profit attributable to: Equity holders of the parent company... 62,480 50, Non-controlling interest v

10 Six months ended 30 June 2015 versus six months ended 30 June 2014 Net interest income increased by Euro 5.1 million, or 6.4 per cent., to Euro 84.1 million for the six months ended 30 June 2015, compared to Euro 79.0 million for the six months ended 30 June 2014 primarily due to a decrease in the Group's interest expense. Interest income Interest income decreased by Euro 25.6 million, or 23.3 per cent., to Euro 84.3 million for the six months ended 30 June 2015, compared to Euro million for the six months ended 30 June 2014 primarily due to a decrease in interest rates, which was partially offset by an increase in the amount of the Group's investments in debt securities. Interest expense Interest expense decreased by Euro 30.7 million, or 99.3 per cent., to Euro 0.2 million for the six months ended 30 June 2015, compared to Euro 30.9 million for the six months ended 30 June 2014 primarily due to the decrease of interest rates to historically low levels. Net income from securities and foreign exchange transactions Net income from securities and foreign exchange transactions was 1.1 million for the six months ended 30 June 2015, compared to a loss of Euro 3.0 million for the six months ended 30 June 2014 primarily due to an increase in income from securities. Net income from hedge accounting Net income from hedge accounting was Euro 1.7 million for the six months ended 30 June 2015, compared to a loss of Euro 2.5 million for the six months ended 30 June 2014 primarily due to the fair value changes of both the derivative hedges and the underlying hedged items. For a breakdown of the Group's derivative contracts during the periods under review see " Significant Factors Affecting Operating and Financial Results Fluctuations in interest rates, currency exchange rates and the valuation of derivatives". Administrative Expenses The Group had 94 total personnel as at 30 June 2015 compared to 87 total personnel as at 30 June Administrative expenses increased by Euro 1.5 million, or 22.8 per cent., to Euro 8.2 million for the six months ended 30 June 2015, compared to Euro 6.7 million for the six months ended 30 June 2014 primarily due to expenses in 2014 having been realized at lower amounts than provisioned for at year end Income Taxes Income taxes increased by Euro 3.0 million, or 23.5 per cent., to Euro 15.7 million for the six months ended 30 June 2015, compared to Euro 12.7 million for the six months ended 30 June 2014 due to an increase in operating profit in the first six months of 2015 compared with the first six months of v

11 Financial Position Assets As at 30 June 2015 The following table sets forth, as of the dates indicated, certain summary financial information about the assets of the Group: As at 31 As at 30 June December (Euro '000) Assets Cash and cash equivalents... 1,438, ,907 Loans and advances to credit institutions ,951 1,072,099 Loans and advances to the public and public sector entities... 19,531,227 19,337,730 Debt securities... 8,279,826 6,416,586 Shares and participations... 9,752 9,789 Derivative contracts... 3,729,904 2,321,699 Intangible assets... 5,499 4,757 Tangible assets... 2,464 2,465 Other assets... 5,172 2,196 Accrued income and prepayments , ,032 Total Assets... 33,693,366 30,009,259 As of 30 June 2015, the main components of the total assets of the Group were loans and advances to the public and public sector entities, debt securities and derivative contracts, representing 58.0 per cent., 24.6 per cent. and 11.1 per cent., respectively, of total assets. As of 30 June 2015, total assets had increased by Euro 3,684.1 million, or by 12.3 per cent., to Euro 33,693.4 million, compared to Euro 30,009.3 million as of 31 December 2014, which was mainly attributable to an increase in debt securities, cash and cash equivalents and derivative contracts. Loans and advances to the public and public sector entities Loans and advances to the public and public sector entities increased by Euro million, or 1.0 per cent., to Euro 19,531.2 million as at 30 June 2015, compared to Euro 19,337.7 million as at 31 December 2014 due an increase in the volume of lending by the Group. Debt securities Debt securities increased by Euro 1,863.2 million, or 29.0 per cent., to Euro 8,279.8 million as at 30 June 2015, compared to Euro 6,416.6 million as at 31 December 2014 due to an increase in the amount of funds invested in debt securities. Derivative contracts For a breakdown of the Group's derivative contracts during the periods under review see " Significant Factors Affecting Operating and Financial Results Fluctuations in interest rates, currency exchange rates and the valuation of derivatives". Derivative contract assets increased by Euro 1,408.3 million, or 60.7 per cent., to Euro 3,730 million as at 30 June 2015, compared to Euro 2,321.7 million as at 31 December 2014 primarily due to changes in foreign exchange rates v

12 Liabilities As at 30 June 2015 The following table sets forth, as of the dates indicated, certain summary financial information about the liabilities of the Group: As at 31 December As at 30 June (Euro '000) Liabilities Liabilities to credit institutions... 5,017,693 3,882,771 Liabilities to the public and public sector entities , ,662 Debt securities issued... 25,491,290 23,230,298 Derivative contracts... 1,235, ,399 Other liabilities... 3,596 2,056 Accrued expenses and deferred income , ,902 Subordinated liabilities... 36,257 37,943 Deferred tax liabilities , ,124 Total Liabilities... 33,039,547 29,415,155 As of 30 June 2015, the main components of the total liabilities of the Group were debt securities issued, liabilities to credit institutions, derivative contracts and liabilities to the public and public sector entities, representing 77.2 per cent., 15.2 per cent., 3.7 per cent. and 2.9 per cent., respectively, of total liabilities. As of 30 June 2015, total liabilities had increased by Euro 3,624.4 million, or by 12.3 per cent., to Euro 33,039.5 million, compared to Euro 29,415.2 million as of 31 December 2014, which was mainly attributable to an increase in debt securities issued of Euro 2,261.0 million compared to the balance as of 31 December 2014 and an increase in liability to credit institutions of Euro 1,135.0 million compared to 31 December Debt securities issued The total amount (nominal value) of unmatured bonds and other funding issued by the Issuer as at 30 June 2015 was: As at 30 June 2015 (Euro '000) Domestic funding Kuntaobligaatiot... 19,310 Total... 19, v

13 As at 30 June 2015 International funding Debt instruments issued under EMTN Programmes... 19,130,039 Debt instruments issued under the AUD Programme ,838 Debt instruments issued under stand-alone MTN documentation... 2,123,213 Total... 21,684,190 Other domestic funding Commercial Paper of the Issuer... 1,555,244 Debenture loans... 35,000 Total... 1,590,244 Other international funding 2,729,039 Total... 26,022,783 Debt securities issued by the Group increased by Euro 2,261.0 million, or 9.7 per cent., to Euro 25,491.3 million for as at 30 June 2015, compared to Euro 23,230.3 million as at 31 December 2014 primarily due to an increase in the volume of debt securities issued by the Group to accommodate its increased funding requirements. Liabilities to credit institutions Liabilities to credit institutions increased by Euro 1,135.0 million, or 29.2 per cent., to Euro 5,017.7 million as at 30 June 2015, compared to Euro 3,882.7 million as at 31 December 2014 mainly due to an increase in received collateral from derivative counterparties. Liabilities to the public and public sector entities Liabilities to the public and public sector entities consists of primarily of bilateral loans. Liabilities to the public and public sector entities decreased by Euro 17.9 million, or 1.9 per cent., to Euro million as at 30 June 2015, compared to Euro million as at 31 December 2014 primarily due to maturing liabilities. Derivative contracts For a breakdown of the Group's derivative contracts during the period see " Significant Factors Affecting Operating and Financial Results Fluctuations in interest rates, currency exchange rates and the valuation of derivatives". Derivative contracts liabilities for the Group increased by Euro million, or 32.2 per cent., to Euro 1,235.5 million as at 30 June 2015, compared to Euro million as at 31 December 2014 primarily due to changes in interest rates and currency exchange rates v

14 Capital Adequacy Own funds, parent company As at 30 June As at 31 December (Euro '000) Common Equity Tier 1 before adjustments , ,905 Adjustments to Common Equity Tier 1... (5,766) (5,131) Common Equity Tier , ,773 Additional Tier 1 capital before adjustments Adjustments to Additional Tier 1 capital Additional Tier 1 Capital Tier 1 Capital , ,581 Tier 2 capital before adjustments... 35,000 65,914 Adjustments to Tier 2 capital Tier 2 Capital... 35,000 65,914 Total own funds , ,494 Consolidated own funds As at 30 June As at 31 December (Euro '000) Common Equity Tier 1 before adjustments , ,112 Adjustments to Common Equity Tier 1... (5,499) (4,757) Common Equity Tier , ,354 Additional Tier 1 capital before adjustments Adjustments to Additional Tier 1 capital Additional Tier 1 Capital Tier 1 Capital , ,162 Tier 2 capital before adjustments... 35,000 65,914 Adjustments to Tier 2 capital Tier 2 Capital... 35,000 65,914 Total own funds , ,075 Minimum requirement for own funds, parent company Capital requirement 30 June December 2014 Riskweighted assets Capital requirement Riskweighted assets (Euro 000) Credit and counterparty risk, standard method ,069 1,838, ,044 1,588,049 Exposures to institutions... 97,807 1,222,590 79, ,953 Exposures to public sector entities... 3,113 38, Exposures in form of covered bonds... 18, ,489 15, ,731 Items representing securitisation positions... 26, ,548 27, ,851 Exposures in form of shares in CIUs , ,258 Other items... 1,485 18,563 5,460 68,256 Market risk Credit valuation adjustment risk (CVA VaR), standard method... 1,025 12,817 1,586 19,829 Operational risk, basic method... 23, ,618 19, , v

15 TOTAL ,682 2,146, ,357 1,854,467 Minimum requirement for own funds, Group (EUR '000) Capital requirement 30 June December 2014 Riskweighted assets Capital requirement Riskweighted assets Credit and counterparty risk, standard method ,092 1,838, ,077 1,588,468 Exposures to institutions... 97,817 1,222,708 79, ,083 Exposures to public sector entities... 3,113 38, Exposures in the form of covered bonds... 18, ,489 15, ,731 Items representing securitisation positions... 26, ,548 27, ,851 Exposures in the form of shares in CIUs , ,258 Other items... 1,499 18,733 5,484 68,545 Market risk Credit valuation adjustment risk (CVA VaR), standard method... 1,025 12,817 1,586 19,829 Operational risk, basic method... 23, ,143 19, ,928 TOTAL ,987 2,149, ,664 1,858,298 Key figures for capital adequacy, parent company As at 30 June As at 31 December Ratio of Common Equity Tier 1 (CET1) to risk-weighted assets, % % 29.97% Ratio of Tier 1 capital (T1) to risk-weighted assets, % % 30.01% Ratio of total own funds to risk-weighted assets, % % 33.57% Consolidated key figures for capital adequacy As at 30 June As at 31 December Ratio of Common Equity Tier 1 (CET1) to risk-weighted assets, % % 29.94% Ratio of Tier 1 capital (T1) to risk-weighted assets, % % 29.98% Ratio of total own funds to risk-weighted assets, % % 33.53% As at 30 June 2015, the Group's own funds totalled Euro million and its Tier 1 capital totalled Euro million. No provision for dividend distribution was made for Tier 1 capital. The Group's Tier 2 capital totalled Euro 35.0 million as at 30 June As at 30 June 2015, the Group's leverage ratio, calculated under the current Basel III Standards and in accordance with EU Capital Requirements Regulation, was 1.9 per cent., which would be substantially below the prescribed threshold. Contingent Liabilities In the ordinary course of business, the Group enters into transactions which, upon being concluded, are not disclosed in the Group's statement of financial position as assets or liabilities, but result in contingent liabilities. The off-balance sheet liabilities of the Group are financial commitments, consisting of binding loan commitments to customers v

16 As at Breakdown of off-balance sheet unmatured commitments 30 June 2015 (Euro '000) Binding loan commitments... 1,518,819 Commitments As a rule, loans granted to the municipal sector by the Issuer have been pledged to the Guarantor as collateral for the Guarantee. On 30 June 2015, the Issuer had given collateral as follows: As at Bonds 30 June 2015 (Euro '000) Loans pledged to the central bank... 2,308,379 Loans pledged to the Guarantor... 16,830,545 Debt securities pledged to the Guarantor... 6,630,020 Cash Flows The Six Months Ended 30 June 2015 The table below sets out, for the period indicated, information on the Group's net consolidated cash flows on operating, investing and financing activities as well as cash and cash equivalents at the beginning and end of the period. As at 30 June (Euro '000) Cash flow from operating activities ,003 4,476 Cash flow from investing activities... (1,489) (390) Cash flow from financing activities... (1,206) (10,000) Change in cash funds ,307 (5,914) Cash funds at 1 January... 3,181,659 1,885,173 Cash funds at period end... 3,811,966 1,879,259 Operating Activities The operating activities of the Group for the six months ended 30 June 2015 generated net cash inflows of Euro million compared to net cash outflows of Euro 4.5 million for the six months ended 30 June The main driver for this change was the change in collateral the Group received in connection with its derivative contracts. Generally, the Group requires counterparties to provide it with cash collateral for any obligations owed under derivative contracts, and the Group includes any such cash inflow or outflow in cash flow from operating activities. The Group's change in collateral was Euro 1,156.0 million in the six months ended 30 June 2015 and Euro million in the six months ended 30 June 2014, respectively. Investing Activities The investing activities of the Group generated net cash outflows of Euro 1.5 million and Euro 0.4 million for the six months ended 30 June 2015 and 2014, respectively, from the acquisition of tangible and intangible assets. Financing Activities Net cash outflow from financing activities of Euro 1.2 million and Euro 10.0 million for the six months ended 30 June 2015 and 2014, respectively primarily due to repayment of capital investments totalling Euro 1 million in April 2015 and the repayment of a Euro 10 million capital loan in June v

17 Municipality Finance Plc The section headed "Municipality Finance Plc" starting on page 96 of the Offering Circular shall be deemed to be supplemented by the addition of the following information. Risk Management As at 30 June 2015, of the Issuer's 46 counterparties under ISDA Master Agreements, the Issuer had 46 Credit Support Annexes in force. Management and Shareholders of Municipality Finance Plc The section headed "Management and Shareholders of Municipality Finance Plc" starting on page 100 of the Offering Circular shall be deemed to be supplemented by the addition of the following information. Administration of the Issuer Major Shareholders As at 30 June 2015, the Issuer had 282 shareholders and the ten largest shareholders of the Issuer were: Shareholder Shares % of Shares 1. Keva (former name "The Local Government Pensions Institution")... 11,975, Republic of Finland... 6,250, City of Helsinki... 4,066, City of Espoo... 1,547, VAV Asunnot Oy (City of Vantaa) , City of Tampere , City of Oulu , City of Turku , City of Kuopio , City of Lahti , Management of the Municipal Guarantee Board The section headed "Management of the Municipal Guarantee Board" on page 109 of the Offering Circular shall be deemed to be supplemented by the addition of the following information. Administration of MGB As the result of being nominated as the Minister of Foreign Affairs, Mr. Timo Soini resigned from MGB s Board of Directors. A new member to replace him will be elected in the next MGB s Council meeting v

18 No Significant Change Paragraph 4 under the section headed "General Information" on page 126 of the Offering Circular shall be deemed to be replaced by the following statement. Since 30 June 2015 there has been no significant change in the financial or trading position of the Issuer or the Municipality Finance Group v

19 ANNEX Municipality Finance Plc Interim Report v

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