Preliminary data on Finnvera's operations in 2003

Demand for Finnvera's financial instruments continued to be lively

In 2003, Finnvera achieved the goals set for the company’s operations as concerns both domestic financing and export credit guarantees. Demand for domestic financing focused on the financing of working capital and on various company reorganisations, such as changes of generation. Most of Finnvera’s new clients came from the SME sector. In total, clients numbered nearly 25,700. The financing granted by Finnvera helped create about 9,700 new jobs and about 2,600 new enterprises. These figures are higher than those for 2002. The number of offers given for guarantees in foreign risk-taking was one third higher than the figure for the year before.

Although the growth rate of the economy slowed down, the financing granted by Finnvera for domestic operations in 2003 remained at the same level as in 2002. Guarantees given to credits granted by banks and other financial institutions accounted for a little more than half of the total financing of EUR 770.8 million provided in 2003. The total sum of financing granted in 2002 had been EUR 770.2 million.

In 2003, guarantee offers pertaining to foreign risk-taking totalled EUR 2,311.0 million (EUR 1,708.8 million in 2002).

Domestic financing

More new enterprises and jobs

In 2003, Finnvera’s risk financing to enterprises operating in Finland totalled EUR 770.8 million (EUR 770.2 million). In all, Finnvera contributed to the financing of about 8,500 projects. The value of these projects amounted to EUR 1.8 billion. The financing helped create about 9,700 new jobs and about 2,600 new enterprises.

The risk financing granted to enterprises operating in Finland remained at the same level as in 2002. The amount of financing granted to industrial enterprises increased. This stemmed largely from a greater need for working capital; investments by industry were still low. Demand for financing also increased in the tourist industry and in the trade and consumer services sector. These sectors also carried out considerable investments.

Loans accounted for EUR 363.7 milion (EUR 352.1 million) of all financing granted. This was 3.3 per cent more than the year before. In contrast, the share of guarantees declined by 3.3 per cent, to EUR 349.6 million (EUR 361.7 million). Guarantees for exports totalled EUR 57.5 million (EUR 56.4 million), which was 1.9 per cent more than in 2002. Altogether 52.8 per cent of the financing granted consisted of guarantees (54.3 per cent).

The breakdown of financing by region varies from year to year, depending on the financial and investment needs of enterprises in each region. A few regionally important projects or enterprises may change the regional breakdown of financing significantly. The highest growth in the financing granted was recorded in the regions of Kymenlaakso, Southern Ostrobothnia, Kainuu and Northern Savo.

At the end of 2003 Finnvera had 25,401 clients in domestic financing (25,676). The number of clients decreased slightly in the group of micro-enterprises, because many of the loans that had been granted to micro-enterprises and to women entrepreneurs in the latter half of the 1990s were paid back during 2003. More than before, the number of clients increased in the regional offices of Uusimaa, Kajaani and Pori.

Developing areas were major recipients of EU funding granted on regional policy grounds

Financing granted by Finnvera to the national aid areas in 2003 totalled EUR 372.1 million (EUR 383.4 million). Of this, regional interest-subsidised loans accounted for EUR 118.4 million (EUR 104.3 million). The interest subsidy reduces the costs of financing needed by enterprises for investments and for working capital in the national aid areas.

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.

These interest-subsidised loans are intended, e.g. for the establishment of enterprises, for improving the conditions for growth, for creating jobs and for the internationalisation of operations. The loans granted to SMEs in 2003 totalled EUR 94.6 milion (EUR 95.6 million). Of that sum, EUR 54.9 million (EUR 57.2 million) went to enterprises in Eastern and Northern Finland. Finnvera’s ERDF funding contributed to the creation of 683 (867) new enterprises and about 3,100 (4,300) new jobs 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). Thanks to the portfolio guarantee, the commission on the guarantee is slightly lower than normal, or Finnvera can guarantee a higher share of the credit than it would otherwise do. In 2003, Growth Guarantees granted to enterprises employing fewer than 100 people totalled EUR 66.6 million (EUR 54 million).

Lively demand for entrepreneur loans; the number of young entrepreneurs on the rise

An entrepreneur loan can be used when an enterprise is founded or when a change of generation or some other company reorganisation is carried out.

The amount of entrepreneur loans granted in 2003 was record high – EUR 24.2 million (EUR 18 million), or 34.4 per cent more than the year before. The loans were used for subscribing and purchasing stock and partners’ shares and for raising share capital. In all, a good 25 per cent of entrepreneur loans were granted to starting enterprises engaged in new business. The rest were used for various company reorganisations, such as changes of generation and increases in shareholders’ equity.

The growth in the demand for entrepreneur loans is an indication of a real need. Entrepreneur loans have been instrumental in many company reorganisations and changes of generation, and many new enterprises would not have been able to start without an entrepreneur loan.

Financing granted to enterprises that are owned by young people (under 30 years of age) totalled EUR 21.7 million (EUR 18.9 million). The increase on the previous year was 14.8 per cent. Microloans and loans for women entrepreneurs accounted for a considerable share of the loans granted. Altogether 1,065 new jobs were created in these enterprises owned by young people (883).

Foreign risk-taking

Offers for guarantees in foreign risk-taking reached a new record

During 2003, exporters and financiers submitted a total of 314 (291) guarantee applications pertaining to projected export transactions that would involve foreign risk-taking; the value of these applications came to EUR 3.7 billion (EUR 5.2 billion).

Offers for guarantees pertaining to export transactions totalled EUR 2,311.0 million, or one third more than the year before (EUR 1,708.8 million). Industrialised countries accounted for an exceptionally high percentage of the guarantees granted: 50 per cent, or EUR 1,163.0 million. The corresponding figure for Latin America was 30 per cent, or EUR 702.5 million. Finnvera gave the highest guarantee offers for the financing of shipbuilding and for the telecommunications sector.

The value of guarantees granted to promote the exports of SMEs totalled EUR 18.4 million (EUR 29.1 million). The decrease was caused both by the decline in the number of guarantees granted and by the low demand for Letter of Credit Guarantees. The highest numbers of guarantees were granted for exports to Russia, to the Baltic States and to other Central and Eastern European countries. The value of guarantees that pertain to the exports of SMEs and that came into effect in 2003 totalled EUR 19.3 million (EUR 18.5 million).

The shipyard industry received the highest guarantees

Once the enterprises had carried out their export transactions, the value of guarantees that came into effect in 2003 totalled EUR 995.1 million (EUR 745.5 million). The one-third increase that occurred was the result of an order for a cruise vessel. Some of the guarantees granted in 2003 will come into effect in 2004.

Norway accounted for 40 per cent, Brazil for 15 per cent and Mexico for 10 per cent of the guarantees that came into effect. The guarantees cover political and/or commercial risks pertaining to 42 (41) countries.

Of the guarantees that came into effect, the shipyard industry accounted for 40 per cent, the telecommunications industry for 28 per cent, and power generation for 12 per cent.

In addition, the total value of Finance Guarantees and Bond Guarantees that came into effect during the year with regard to export projects in the shipyard industry was EUR 329.6 million (EUR 56.3 million). Among the guarantees that came into effect, Ship Guarantees totalled EUR 23.3 million and Environmental Guarantees EUR 133.3 million.

At year’s end, altogether EUR 201 million of the risks of export credit guarantees was covered through reinsurance and other similar arrangements. Of this sum, the arrangements made in 2003 totalled EUR 14 million. The average project size of capital goods transactions is continually rising; this presents great challenges for the management of risk concentrations that arise in guarantee activities. The reinsurance potential of the risks borne by Finnvera is limited because of their non-marketable character.

Future prospects

Managing Director Markku Mäkinen says that Finnvera’s objectives for this year emphasise three aspects: the promotion of enterprise; ensuring financing for the growth of SMEs; and competitiveness of the export credit guarantee system. To ensure a favourable economic trend, it is essential to promote exports and to encourage investments within SMEs.

Growth of service enterprises, in particular, would have a positive impact on the number of new enterprises and new jobs. The amendment to the Act on Finnvera, currently under debate in Parliament, will expand Finnvera’s opportunities to provide financing in all service trades. In addition, balanced regional development is an important challenge for Finnvera, and special attention is paid to measures that can increase financing on regional policy grounds.

The export figures for the last quarter of 2003 were not very encouraging. The high exchange rate of the euro against the US dollar detracts from the competitiveness of Finnish export enterprises. Demand for exports is created by a sustained willingness to make investments. This depends, above all, on economic growth in the United States and in Europe. It is still highly uncertain whether growth will accelerate and continue. However, there are already some signs that the demand for exports has picked up in most of the main export sectors.

Guarantees taken out for exports to countries involving political risks keep the demand for Finnvera’s export credit guarantees high, since growth rates in these countries have been higher than elsewhere. These countries invest in industrial plants, in power generation, in the mining sector and in telecommunications networks. This creates demand for Finnish companies engaged in the exports of capital goods.

Demand for guarantees is particularly high for exports to Latin American countries. In contrast, there is little demand for guarantees for exports to Asia, since the financial arrangements for exports to China – the fastest growing economy – are mostly carried out by local sources. Demand for guarantees for exports to Russia is on the increase. Projects are carried out in more sectors than before, and the average size of projects is rising.

It is predicted that the demand for Finnvera’s export credit guarantees will focus on projects in the telecommunications sector, on power generation, on the forest industry, on the mining sector and on the financing of shipbuilding projects, which – contrary to other sectors – exist above all in the OECD industrialised countries.

Along with the enlargement of the EU – when the new Member States will be encompassed by the EU rules concerning short-term export credit guarantees – Finnvera’s possibilities of granting short-term export credit guarantees will diminish. Because of the EU rules, Finnvera cannot grant export credit guarantees that have a risk period of under two years for exports to the OECD industrialised countries. This restriction reduces Finnvera’s possibilities of providing SMEs with export credit guarantee services for foreign risk-taking. Major companies are more likely to find substitute services.

For further information:

Markku Mäkinen, Managing Director, tel. +358 20 460 7226
Veijo Ojala, Director, Field Operations, tel. +358 20 460 7405 (Domestic operations)
Topi Vesteri, Director, Major Customers and Export Credit Guarantees, tel. +358 20 460 7238 (Foreign risk-taking)