MCI Financial Statements 2019
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okt.22 Municipality Credit Iceland Translation of Financial Statements for the year 2019 These financialstatementsistranslatedfromtheoriginalwhichisinIcelandic.Should therebediscrepanciesbetweenthetwoversions,theIcelandicversionwilltake priorityoverthetranslatedversion. Index Page Key Figures ............................................................................................................................................................... 2 Report of the Board of Directors and the Managing Director .................................................................................... 3 Independent Auditor's Report ................................................................................................................................... 7 Income Statement and Statement of Comprehensive Income .................................................................................. 10 Statement of financial position .................................................................................................................................. 11 Statement of Changes in Equity ................................................................................................................................ 12 Statement of Cash Flows .......................................................................................................................................... 13 Notes to the Financial Statements ............................................................................................................................ 14-34 Municipality Credit Iceland Plc. Identity number 580407-1100 Borgartun 30, P.O. Box 8100 128 Reykjavik Key Figures for Municipality Credit Iceland Income Balance sheet MCI Plc. Financial Statements for the year 2019 2 Report and statement of the Board of Directors and the Managing director Municipality Credit Iceland Plc. (MCI) is a statutory limited liability company owned by all Icelandic municipalities. MCI is a financial institution and operates pursuant to Act no. 150/2006 on the incorporation of Municipality Credit Iceland as a statutory limited liability company, Act No. 161/2002 on Financial undertakings, cf. The Companies Act No. 2/1995 and is supervised by the Icelandic Financial Supervisory Authority. MCI´s main function is to secure favourable funding for Icelandic municipalities and their related organisations and enterprises. MCI is by law only allowed to fund municipal projects that are of general economic interest. The financial statements for the year has been, to the best knowledge of the Board of Directors, prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. MCI has issued bonds that are registered on the Icelandic stock exchange (Nasdaq Iceland). Market maker agreements are in place for two bond classes. Operations during the year Net earnings amounted to ISK 794,8 million compared to ISK 857,3 million in previous year. The profit for the year is added to retained earnings. The Board of Directors suggests that no dividend will be paid in 2020 based on the profit for the year 2019, as a part of strengthen the position of MCI and ensure growth of the equity. Last year ISK 428 million where paid in dividend for the year. MCI shareholder equity amounted to ISK 18.278 million compared to ISK 17.912 million at prior year and has increased by 2,0% between the years. The capital ratio of MCI as it is defined by the Financial Undertakings Act No. 161/2002 was 70% compared to 77% as of year-end 2018. For further information see note 26. The main goal of MCI´s management of shareholder equity is to always ensure that the company has ample funds to meet the risks in its underlying business. MCI´s equity consists of paid share capital, statutory reserves and retained earnings. Minimum capital requirement per the financial companies act no 161/2002 is 8% of risk weighted assets. MCI calculates and publishes it equity ratio in accordance with the Act on Financial Undertakings. According to Financial Undertaking Act no. 161/2002, financial companies are obliged to meet added capital requirements to better handle operational distress and economic setbacks. MCI is required to meet an 2,5% requirement in capital conservation buffer and additional 1,75% in countercyclical buffer. Total of 3,75% additional to the 8% minimum as of year-end. The countercyclical buffer will increase to 2,00% on 1st of February 2020, making the total of 4,50% additional to the 8% minimum or 12,50%. Total assets amounted to ISK 117.040 million compared to ISK 105.408 million as of year-end 2019. Total loans to customers where ISK 110.203 million compared to ISK 99.051 million a year earlier. The main purpose of MCI is to offer loans to municipalities at the most favourable interest rates possible. During the year ISK 17.178 million of new loans were made, compared to ISK 31.416 million in the preceding year. MCI finances its lending activities by issuing bonds in the benchmark bonds LSS150434 and LSS151155. MCI held 10 bond auctions during the year 2019 in the Icelandic market to raise funds for on-lending. The net proceeds from the bond auctions were ISK 15,8 billion. In comparison, there were 10 auctions held in 2018 with proceeds of ISK 22,7 billion. Total outstanding amounts (nominal) at year-end were, ISK 52,3 billion in LSS34 and ISK 22,3 billion in LSS55. MCI has in previous years issued other bonds and borrowed directly from international financial institutions, such as Council of Europe Development Bank and the Nordic Investment Bank. MCI and CEB signed a loan agreement for 10 million euro in 2017 and MCI has used the total loan to finance a certain project. MCI launched a green bond program with the purpose of facilitating favourable funding for projects with environmental benefits. In cooperation with Landsbanki, MCI issued a Green Bond Framework, that aligned with ICMA´s (International Capital Market Association) Green Bond Principles. The purpose of the program is to make positive social impact by funding projects that are focused on environmental benefits and mitigate climate change. MCI obtained a “Second party opinion” from Sustainalytics in October 2019. MCI´s first issuance of green bonds (LSS040440 GB), was on 19th February 2020. The issuance was very well received where market yield was 1,35%. MCI Plc. Financial Statements for the year 2019 3 MCI issued its benchmark bonds LSS34 and issued at market yield of 1,40%. The 5 bp difference will benefit upcoming funding of municipalities´ environmental projects. Parliament of Iceland agreed to give the Icelandic government the authority to confirm the decision of EU Joint committee no. 79/2019 regarding amendment in annex IX to EU agreement. Directive 2013/36/EU of the European Parliament and of the Council on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms has been amended into the EU agreement. By confirming the amendment in annex IX. MCI was added under paragraph 5, article 2, defining financial institutions that this directive should not apply to. This amendment will not change operations or operating license of MCI. MCI will continue to operate as a financial institution and operates pursuant to Act no.161/2002 on financial undertakings. This amendment will open the possibility of excluding MCI from standard regulatory requirements based on Directive 2013/36/ESB and related directives. MCI operates pursuant to Act no. 150/2006 on the incorporation of Municipality Credit Iceland as a statutory limited liability company, Act no.161/2002 on financial undertakings and the companies Act no. 2/1995. Changes in law, court rulings or government decisions is outside of MCI´s control. No further legal matters are outstanding against MCI. See note 4 for further information. MCI is exempted from paying income tax per Act no. 90/2003. MCI is also exempted from specific tax on financial institutions per Act no. 155/2010. See note 2 for further information. MCI has three employees, Managing director, Credit manager and Treasury and Risk manager. In addition, the company has outsourced various administrative services to The Association of Local Authorities in Iceland to ensure adequate segregation of duties. Shareholders MCI´s shareholders are all 72 Icelandic municipalities. Reykjavik holds 17,5% of the MCI shares and is the only shareholder that owns more than 10%. 56% of MCI shares are owned by the 10 largest shareholders. List of shareholders is in note 26. The Board of Directors consists of five persons, each has an alternative. All are elected for a period of one year at MCI´s shareholders meeting. Board of Directors, both main board and alternative board, is gender equal. Risk management and measurement The cornerstones of MCI´s risk management is to match lending and borrowing and to make sure that loans are not made unless their financing is secured. Based on these cornerstones’ liquidity of MCI´s funding will always be sufficient. Per the Local Government Act No. 138/2011, municipalities may pledge their revenues as security for loans and guarantees granted by MCI, but for no other loans or guarantees. This guarantee and the Local Government Act are the main reason that MCI has never lost any outstanding loans. The Board of Directors approves MCI's risk management policy and risk appetite. The Board approves MCI´s risk management regulations, monitors enforcement of the regulations and ensures that internal process for risk