Uncertain market situation: challenges in municipal financing

by | Nov 1, 2021 | Borrow

Stagnating markets and rising interest rates are currently responsible for worry lines. Clear trend: no sign of it. While investors are groping in the dark, financial managers are facing new challenges with regard to municipal financing.

Global production and supply bottlenecks, the European energy shortage, and rising prices and inflation rates are among the factors causing uncertainty on the world market. While prices on the stock market are trending sideways, interest rates are rising due to inflation fears.

Rolf Biland, Chief Investment Officer of VZ VermögensZentrum, provides an insight and outlook on market developments.

 

Rolf Biland
Chief Investment Officer

VZ VermögensZentrum

 

How do you assess the current uncertainty on the markets?

Many investors have become accustomed to the comparatively steep upward trend of the stock markets over the months and the volatility level is also below the long-term averages – for these reasons, investors are reacting with increased uncertainty to the “more normal” investment environment that has prevailed since September.
The year 2021, like 2020, is an economic exception. The economy collapsed rapidly last year due to Covid-19, then recovered in a pendulum fashion and returned to strong growth. Despite the ongoing pandemic and its aftermath, growth in the developed world is expected to normalize further in a few months.

What are your expectations regarding market developments?

Provided there are no new crises and the central banks do not tighten their monetary policy reins sharply or unexpectedly, which I assume will be the case, this should not startle the markets either. As most companies in the industrialized countries have their costs under control and have increased the efficiency of their business models, I continue to expect a friendly trend on the financial markets – even if more fluctuations and phases of uncertainty are to be expected.

Rising interest rates: What does this mean for municipalities?

The general market uncertainty also has an impact on municipal financing. Compared with two months ago, it is clear that interest rates are currently rising slightly, as illustrated in the chart below.

Background knowledge explained: How is the yield curve composed and how can it be interpreted?

The yield curve is composed of the money market interest rate and the capital market interest rate. The money market interest rate (for terms of up to one year) is based on LIBOR, which will be replaced by SARON at the end of the year. From one year onwards, the capital market interest rate is used, which is based on the swap rate.
Short-term interest rates have hardly changed in recent months. Capital market interest rates, on the other hand, have risen significantly. As a result of the strong economic recovery, which is being additionally fueled by extensive government aid packages, fears of rising inflation are spreading around the world, leading to rising interest rates in the multi-year range.

Rolf Biland notes that the public sector was and still is strongly challenged by the pandemic – the tax burden will probably not decrease in the coming years due to the special expenses. Municipalities also have an additional burden, as they have to adapt to changing needs and behavior patterns of the population, such as mobility or home office.

Is there a reason to worry?

Loanboox co-founder Andi Burri also notes a certain uncertainty among municipalities, which is reflected in financing. But there is currently no cause for concern: Interest rates continue to be very attractive, and negative interest rates are possible for loans with terms of up to four years or even longer.

Portrait von Andi Burri

 «Especially in times of uncertainty, thorough liquidity and financial planning continues to gain importance.»

 

Andi Burri, Co-Founder & Managing Director Switzerland of Loanboox

In addition, in combination with the consistency of the municipality’s financial situation, it is important to form one’s own opinion regarding the development of interest rates, as this allows a strategy to be developed and pursued. In view of the matching maturities and the continuing uncertainty in the capital market, balancing or long-term maturities in the loan portfolio will be increasingly in demand in the coming months, Burri suspects.

How we can support you

In addition to requesting and processing financing, Loanboox also provides support in the planning and monitoring phase. Loanboox debt planning service helps to set up a clean strategy, evaluate its advantages and disadvantages and simulate costs. The intuitive debt management tool simplifies the management of loans and allows detailed analysis of maturities.

Feel free to contact us if you would like us to support you.

From 0 to 25 billion in 5 years

From 0 to 25 billion in 5 years

by | Oct 5, 2021 | Insights, Media

A start-up that has helped to shape fintech innovations in Switzerland by digitalizing lending is celebrating its 5th anniversary: Loanboox. 
With 25 billion in closed financings in seven countries, the financing platform started off successfully and is rapidly developing its offerings further.

Since their launch in 2016 in Zurich as digital solution for debt financing, big ticket borrowers were able to close more than 2’100 transactions with a volume of 25 billion Swiss Francs in seven countries. A team of 40 employees supports 3‘000 registered municipalities, cities, public institutions, large companies and institutional lenders and banks and continues to develop the platform rapidly.    

“The high demand shows the need for efficient debt capital markets. Swiss borrowers, for example, have already earned 23.2 million Swiss francs via Loanboox - through negative interest rates. I am very pleased that we can contribute to fluidify debt markets, making it simpler and faster for all market participants”, comments Philippe Cayrol, CEO of Loanboox. “In 2021, we facilitated projects such as hospital infrastructure, school buildings and retirement homes which makes everyone proud to contribute a little bit to the society of tomorrow”, continues Cayrol.  

The idea behind Loanboox was radical and courageous: to create a digital marketplace for large loans.  Borrowing entities submit their loan requests online and professional investors bid on them: this saves time for all and ensures transparency. “Financings with volumes of up to 450 million Euro have been put on the platform and as the business matures, we see an increasing deal flow of large requests from very established borrowers”, adds Cayrol.  

The company has evolved substantially since its first days. Loanboox has created automation tools and deeper analytics for their customers. The Fintech also offers a broader service for issuers, including debt planning and transaction support on large financings. 150 active lenders profit from process efficiencies, data insights and from a lean co-creation of new products.    

In the last 6 months, the company achieved a number of firsts on its platform: the first sustainability-linked loan, the first secured transaction and the first transactions in Eastern Europe. These developments pave the way for a bright and more sustainable future, for both customers and Loanboox.   

About Loanboox

The fintech Loanboox is the leading European platform for debt financing. Its clients include municipalities, cities, cantons and other public corporations and large companies, institutional investors and banks. Loanboox is a member of the business community Leaders for Climate Action. 

Contact persons:

Loanboox 
Philippe Cayrol, CEO  
Martina Bühler, CMO 
Talacker 50, 8001 Zürich   
055 220 78 29, press@loanboox.com

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Study details: How COVID-19 burdens public budgets

by | Jul 1, 2021 | Borrow

A recent study by the Swiss Association of Cities (SSV) and the auditing firm PwC shows how COVID-19 will burden public budgets. According to the study, tax revenues will drop significantly in 2021 and many cities and municipalities will have to take on debt. 

It will be a lean period for cantons and municipalities as far as tax revenues are concerned, with a simultaneous increase in expenditure. At least that is the assessment of the 15 cantons and 77 municipalities or cities that participated in the survey. After a slump in the current year, the crisis is expected to end in 2022, but the question is how long the aftermath will be felt.

Additional costs, especially in the health and social sectors

The study shows that most cities and municipalities will have to bear significant additional costs in the health and care sector as well as in social services in 2020 and 2021. In addition, there are costs arising from the direct pandemic response – for example, crisis teams or personnel for hygiene concepts. And it also shows that these burdens are declining much faster at the cantonal level than at the city and municipal level. There, debt growth of 72 percent is expected.

Another factor, according to the study, is the tax reform (STAF) that came into force last year. For example, corporate tax revenues have already fallen in 2020 compared to 2019. The municipalities would feel this effect differently – due to the varying implementation of the cantons. In principle, however, the effect will be clear everywhere.

General tax increases are not at all expedient. Temporarily, I can imagine an increase in value-added tax. But on a very limited scale.

Ernst Stocker, Cantonal Councillor, Finance Director of the Canton of Zurich and President of the Conference of Finance Directors

Stabilise in the short and medium term

Interesting is the information given by the study participants with regard to their stabilisation measures. The majority of cities and municipalities focus on short- and medium-term stabilisation measures (36% and 51%) – only 11% plan for the long term and pay particular attention to tax rates and investments.

 

READ THE WHOLE STUDY

Municipal financial planning: “holistic” is the magic word

Municipal financial planning: “holistic” is the magic word

by | Jun 29, 2021 | Borrow

Annual financial and budget planning is a challenge for many municipalities even in ordinary times. The as yet unforeseeable consequences of the COVID 19 pandemic now make it even more difficult. In the Loanboox webinar, the most important basics and examples for a solid financial management of municipalities were shown. The most important insight: The magic word is “holistic”.

The guide produced by the Fachhoschule Graubünden at the request of the Swiss Association of Municipalities shows how it is done: Mission statement, strategy and legislative plan, plus integrated task and financial planning (IAFP) and finally liquidity planning. Dominik Just, professor of finance and accounting at the University of Applied Sciences Graubünden, explains the individual steps. Click on the image to learn more.

Integrated task and finance plan makes it easier

“There are municipalities that don’t have all that,” he explains, referring to the Swiss militia system and the many small municipalities where financial administration is done on a part-time basis. These municipalities have a much harder time with long-term and sustainable planning of larger projects, Just says. That is why at least the minimal version of the IAFP is recommended – and relatively easy to implement with the guide. “You have to look at financial management as a holistic issue,” says Just.

“The IAFP shows what the impact is on us”.

Patricia Bär makes the theory clear with a case study. The head of the finance department of the city of Bern reports on the financial planning for the new 50-metre swimming hall. The cost was 75 million Swiss francs.

In the video she explains how the project was integrated into the budget planning.

Do not postpone investments

Patricia Bär admits that the city of Bern is also struggling with the issue of new debt: “But that doesn’t necessarily have to do with COVID-19.” Tax revenues were already lower than expected in 2020. The city has reacted with a package of savings measures, but this does not affect planned investments – such as new school buildings or the renovation of sports and water facilities. This makes it all the more important to draw up financial and budget plans that are as accurate as possible.

Andi Burri, Co-Founder and Managing Director Loanboox Switzerland, also feels the uncertainties in daily conversations with financial managers. In addition to Corona-related additional expenditures and lower tax revenues, negative interest rates and the threat of a loss of creditworthiness are a concern for municipalities. “We try to support and advise them with our expertise,” says Burri.

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Fostering Quality Education – that’s how we do it

Fostering Quality Education – that’s how we do it

by | Jun 8, 2021 | Events

Quality education is the basis for equal opportunities and a good quality of life – and one of a total of 17 Sustainable Development Goals established by the UN in 2015. Loanboox also supports and promotes this goal, among other things with trial days for teenagers. Here Silvain and Yannick tell what they have experienced and learned.

What does a computer expert actually do in a company, Silvan wanted to know – being a computer freak by himself. And so he jumped at the chance to spend a day with his uncle, a Loanboox IT manager. “It was exciting! I got insights into the HTML system. It’s a bit complicated, but I still find it very interesting and I like it,” says Silvan and adds: “I also like the team my unlce works with. They are all very nice.” 

Hands on and try it out

The trial apprentices should not only watch, but also do as much as possible themselves. This also appealed to Yannick, who was allowed to accompany our Talent Management & Executive Assistant Chantal for a day. She showed him what is involved in the tasks of a commercial clerc and the marketing team.

“I was very happy about this, because it is currently very difficult to find a KV trial position. It has given me a lot of joy and a good insight,” Yannick described his experience later. He even got to really like working with Excel. His resumé: “I have learnt and seen a lot. Thank you for this great insight.”

Both could well imagine working in these jobs one day. 

What are the UN Sustainable Development Goals?

The Sustainable Development Goals (SDGs) are a collection of 17 interlinked global goals set up by the United Nations (UN) to ensure sustainable development worldwide on an economic, social and ecological level. The SDGs are intended to be achieved by the year 2030.

UN Sustainability Development Goals

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