Record-high demand for Finnvera’s financial instruments

Preliminary data on Finnvera’s operations in 2004

In 2004, Finnvera exceeded the targets set for its financial operations. The amount of risk financing granted to SMEs, in particular, was higher than ever. Finnvera’s financing contributed to the creation of about 11,500 new jobs and 3,000 starting enterprises. The total value of export credit guarantee applications amounted to EUR 6.5 billion, which is the highest figure in Finnvera’s history. The biggest guarantee offers applied to telecommunications and to shipping and shipbuilding. Demand for guarantees for exports to Russia was five times higher than the year before.

The economy developed favourably on the domestic market; this was reflected clearly in the demand for Finnvera’s financial instruments. In 2004 Finnvera’s financing for enterprises operating in Finland reached a new record, or EUR 891.5 million (EUR 770.8 million). Guarantees on credits granted by banks and other financial institutions accounted for 54 per cent of the total volume of financing.

In 2004 Finnvera received a total of 304 (314) guarantee applications pertaining to projected export transactions. The value of guarantee offers given was EUR 2,209.4 million (EUR 2,311.0 million). In addition, the value of applications for finance and bond guarantees, which cover domestic risks and pertain to export transactions, and for ship and environmental guarantees totalled EUR 2,017.3 million (EUR 1,117.3 million). The value of the guarantees granted came to EUR 517.5 million (EUR 461.6 million).

The total number of clients at the end of 2004 was approximately 26,300.

Domestic financing
A sharp rise in the number of starting enterprises and new jobs

The risk financing granted by Finnvera to enterprises operating in Finland totalled EUR 891.5 million in 2004. The volume of financing granted rose sharply on the previous year, by 16 per cent. Investments by SMEs increased on the previous year, and significantly more investments were granted financing. The total value of projects where Finnvera acted as a co-financier was EUR 2.4 billion, of which 54 per cent consisted of investments. The number of new jobs created was 18 per cent more than in 2003, or about 11,500. Approximately 3,000 new enterprises began operations with the help of Finnvera’s financing; this is 15 per cent more than the year before.

In 2004, the fastest growth in financing granted was recorded in the Helsinki area, in Southwestern Finland, Southern Savo, Central Ostrobothnia and Central Finland.

SMEs engaged in both industry and the service sector invested more briskly than before; this also increased the demand for Finnvera’s financial instruments. Moreover, immaterial investments rose markedly. The liveliest demand was noted in the metals industry and in trade.

The volume of loans granted rose by 13 per cent, to EUR 411.8 million (EUR 363.7 million). The total sum of guarantees increased by 22 per cent, to EUR 426.6 million (EUR 349.6 million). Altogether 54 per cent of the financing granted consisted of guarantees (53 per cent).

At the end of 2004 Finnvera had 26,111 clients in domestic financing (25,401). In the group of micro-enterprises, the number of clients increased by 2.4 per cent, and among other SMEs by 5.5 per cent.

Support from the EU for new enterprises and jobs in developing areas

In 2004, Finnvera granted more financing for developing areas than ever before, in total EUR 433.9 million (EUR 372.1 million). Of this sum, EUR 132.1 million was regional interest-subsidised loans (EUR 118.4 million).

Finnvera acts as an intermediary for the support programmes of the European Regional Development Fund (ERDF). This support is included in loans for investments and working capital and in entrepreneur loans, microloans and loans for women entrepreneurs in Objective 1 regions of Eastern and Northern Finland, in Objective 2 regions of Western and Southern Finland, and in regions of transitional arrangements. The interest subsidy granted by the State of Finland and the ERDF reduce SMEs’ financing costs in the Objective regions.

These interest-subsidised loans to SMEs totalled EUR 94.8 million (EUR 94.6 million), of which EUR 58.7 million (EUR 54.9 million) was granted to enterprises in Eastern and Northern Finland. Partly thanks to Finnvera’s ERDF financing, 597 (683) new enterprises were established and about 3,500 (3,100) jobs were created or kept in the Objective regions.

To cover some of the financing granted to SMEs, Finnvera can apply for a portfolio guarantee from the European Investment Fund (EIF). In that case, the guarantee commission is lower than normally. The total value of growth guarantees granted in 2004 was EUR 80.3 million (EUR 66.6 million).

Financing for growth and company reorganisations

Growing enterprises often need financing for investments and for the working capital required by investments. Today, growing enterprises also invest heavily in immaterial production factors. Lack of collateral is often a major hindrance preventing a growing enterprise from obtaining financing. In such a case, Finnvera is needed to share the risk together with other financiers. Finnvera is currently improving the efficiency of financial arrangements designed for growth-seeking enterprises. The goal set for 2005 is to identify and to provide financing for about 1,000 growing enterprises.

Some SMEs grow through internationalisation. Each year, Finnvera has granted about EUR 10 million for the internationalisation projects of SMEs.

Demand for entrepreneur loans for various company reorganisations continued to be as brisk as in 2003. The amount of entrepreneur loans granted in 2004 was record high, EUR 28.5 million (EUR 24.2 million).

Financing for exports
More applications than ever before for guarantees in foreign risk-taking

In 2004, the total value of guarantee applications submitted by exporters and financiers to Finnvera in conjunction with projected export transactions amounted to EUR 6.5 billion. This was the highest figure in Finnvera’s history. Altogether 304 applications were received in 2004 (314).

Offers for guarantees concerning foreign risk-taking in connection with export transactions amounted to EUR 2,209.4 million (EUR 2,311.0 million). Industrialised countries accounted for 30 per cent, or EUR 660.0 million, of the guarantees granted. The corresponding figure for Latin America was 23 per cent, or EUR 510.2 million. Finnvera’s highest guarantee offers applied to the telecommunications sector and to shipbuilding and shipping. As in the previous year, the greatest number of guarantees was granted for exports to Russia.

The value of guarantees granted for the exports of SMEs totalled EUR 18.6 million (EUR 18.4 million), while the value of guarantees that came into effect totalled EUR 16.8 million (EUR 19.3 million).

Demand for guarantees continued to be brisk

As in 2003, the demand for guarantees was liveliest in the sectors of telecommunications, shipbuilding and shipping, which together accounted for 81 per cent of all guarantees granted.

Once the enterprises had carried out their export transactions, the total value of guarantees that came into effect in 2004 was almost the same as in the previous year, or EUR 987.1 million (EUR 995.1 million). Some of the guarantees granted in 2004 will come into effect in 2005.

Brazil accounted for 17 per cent, Russia for 16 per cent and Poland for 13 per cent of the guarantees that came into effect. The guarantees cover political and/or commercial risks pertaining to 43 (42) countries.

The telecommunications sector’s share of guarantees that came into effect was 61 per cent. The figures for power generation were 18 per cent and for the wood-processing industry 9 per cent.

Sharp increase in the demand for guarantees for exports to Russia

Guarantee offers and commitments for exports to Russia were five times higher than in 2003. By volume, the biggest guarantees were granted to banks that provide financing for the exports of Finnish enterprises. Among the sectors that received guarantees were telecommunications, the paper and forest industries and the basic metals industry.

In 2004, the number of guarantee decisions concerning transactions of EUR 5–35 million was much higher than before, although the real growth in the total volume of guarantees was attributable to a couple of major transactions.

In terms of numbers, most guarantees were short-term credit risk guarantees. In this category, Finnvera guaranteed transactions with altogether 79 Russian buyers.

Russia accounted for 16 per cent of guaranteed exports. This is the second highest share, surpassed only by Brazil.
Future prospects

This year, Finnvera’s activities will emphasise the promotion of enterprise and the development of increasingly efficient financing for the growth of SMEs. In particular, Finnvera will focus on ways of securing the financing of starting, growth-seeking and innovative SMEs. Innovative business ideas and the growth of SMEs help ensure that jobs stay in Finland despite global competition.

Most new enterprises and jobs are created in the sectors of trade and services. Industry’s investments improve the competitiveness of enterprises and create new jobs. The financing granted by Finnvera on regional policy grounds promotes balanced regional development and the prerequisites for growth among enterprises in developing areas.

At the beginning of 2005, the Government of Finland revised its commitments to Finnvera with respect to interest subsidies and compensation for losses. In consequence, Finnvera can take higher risks than before when providing financing for starting and growth-seeking enterprises. In this way, Finnvera wants to foster their growth.

Exports of capital goods picked up slightly last year; this has increased the demand for export credit guarantees. This demand is expected to be liveliest for exports to Russia and to Latin America. Measured by the number of guarantees, Russia has been the most active market for several years; this trend is likely to continue.

In the financing of shipbuilding and shipping, industrialised countries are still expected to dominate risk-taking. When exports of telecommunications networks, machinery and equipment for the metals industry, and power plants are covered by export credit guarantees, the main export markets are countries involving political risk. The large size of individual projects inevitably leads to many significant risk concentrations.

Despite the current upswing in exports, there is reason to be concerned about the competitiveness of the Finnish export industry. Production is constantly being moved to other countries. There are signs that the number of major capital goods exporters is shrinking.

For further information:
Markku Mäkinen, Managing Director, tel. +358 20 460 7226
Veijo Ojala, Deputy Managing Director, tel. +358 20 460 7405 (domestic financing)
Topi Vesteri, Deputy Managing Director, tel. +358 20 460 7238 (financing of exports)