Finnvera's outstanding commitments rose to eur 5.7 billion

Finnvera's Interim Report 1 January - 30 June 2003

On 30 June 2003, the outstanding commitments of Finnvera plc totalled EUR 5.7 billion, as against EUR 4.6 billion a year ago. Credits and domestic guarantees accounted for EUR 1.9 billion, and export credit guarantees and special guarantees for EUR 3.8 billion of the total outstanding commitments. At the end of the period under review, Finnvera had 25,700 clients. It is estimated that the domestic projects financed during the first half of the year will help create some 5,400 new jobs.

The risk financing granted by Finnvera for enterprise operations in Finland totalled EUR 447.3 million (EUR 470.1 million). More loans were granted than during the corresponding period last year; however, guarantees accounted for an ever greater share of total financing. For instance, demand for the entrepreneur loan - used for financing changes of ownership and changes of generation - has been brisk. The financing granted promoted the implementation of projects totalling EUR 1.02 billion.

The company acquired 2,161 new clients, which is more than during the first six months the year before (2,052). Of the new clients, 63 per cent were enterprises at the start of their operations. In all, the number of Finnvera's clients declined slightly during the first half of the year On 30 June 2003, clients numbered 25,700, whereas the figure a year ago had been 26,400. The fact that many small-scale clients paid back their loans reduced the number of clients.

Aid areas received in total EUR 215.5 million (EUR 230.8 million), which accounts for 48.1 per cent of all financing granted (49.1). Of the financing granted to aid areas, regional interest-subsidised loans accounted for EUR 73.5 million.

During the first six months of 2003, the value of growth and employment guarantees supported by the European Investment Fund totalled EUR 39.6 million (EUR 43.8 million). The value of loans supported by the European Regional Development Fund (ERDF) and granted to Objective Regions 1 and 2 totalled EUR 60.7 million (EUR 43.7 million).

In relative terms, during the first half of 2003, the most rapid increase in Finnvera's financing was recorded in Southern Ostrobothnia and Kymenlaakso. Finnvera's clients in Lapland, Kainuu, Satakunta and Northern Savo account for the highest proportion of the regional enterprise stock.

During the first six months of the year, Finnvera received a total of 156 guarantee applications (134) pertaining to foreign risk-taking. Their total value was EUR 1,443.0 million (EUR 2,026.2 million). The number of guarantees granted during this period was 135 (109). Their total value was EUR 1,732.9 million, or three times more than the year before (EUR 538.8 million).

The value of the guarantees that came into effect during the first half of the year totalled EUR 518.1 million, which is nearly the same figure as during the first half in 2002 (EUR 531.5 million).

During the first half of the year, finance guarantees were granted for a credit of EUR 90.0 million associated with one export project in the shipyard industry.

The finance guarantees that came into effect in the shipyard industry pertained to credits totalling EUR 270 million.

In May, with the consent of the Cabinet Committee on Economic Policy, Finnvera signed an agreement with Kvaerner Masa-Yards and its parent company, Aker Kvaerner ASA. The purpose of the agreement is to give Kvaerner Masa-Yards a financial standing independent of the Norwegian parent company until the end of 2010.

Under the agreement, Finnvera agrees to grant Masa-Yards guarantees, which the company can use in negotiations for new orders on the highly competitive international shipbuilding market. The maximum sum of the guarantees depends on the size of the future orders, and guarantees are granted separately for each project.

The maximum amount of Finnvera's commitments pertaining to the pre-delivery financing needed for ships may rise to nearly one billion euros. It is estimated that the value of commitments arising from Finnvera's Buyer Credit Guarantees may reach nearly 1.5 billion euros.

In addition, offers for bond guarantees covering domestic risks and pertaining to export projects amounted to EUR 67.5 million (EUR 35.7 million). One environmental guarantee with a value of EUR 133.3 million was also granted during the first half of the year.

Future prospects

Economic growth on Finland's most important export markets will continue to be sluggish, and the level of investments will remain low; this will place export companies in a more difficult position. The strengthening of the euro will weaken exporters' possibilities for price competition. Economic difficulties in leading industrialised countries will also increase uncertainty on emerging markets.

Decreases in the numbers of orders received by the export industry will also have a major effect on the development of the SME sector in Finland, as the profitability of enterprises starts to decline and more people are laid off and dismissed.

As investments are put on hold, demand for financing among SMEs will focus on the financing of working capital. However, the exceptionally low interest rates may encourage SMEs to make investments; this, in turn, will increase the demand for credits.

Demand for Finnvera's financing will also rise as a result of frequent company reorganisations. The challenge in these reorganisations is how to ensure changes of generation in SMEs in all regions of Finland.

Owing to increased risks, the demand for Finnvera's export credit guarantees is expected to remain fairly brisk. The number of export credit guarantees that have been granted and that have come into effect will clearly surpass the level achieved in 2002.

Commitments for individual projects are very high, especially in the telecommunications and shipping sectors. This will inevitably increase Finnvera's risk concentrations because of limited reinsurance potential and the cautious taking of risks by commercial export financiers.

The company's financial trends

The Finnvera Group's profit for the period under review totalled EUR 11.1 million. The corresponding figure a year ago was EUR 7.3 million; i.e. the Group's profit increased by EUR 3.8 million.

The parent company's profit came to EUR 16.9 million. This was EUR 5.1 million more than during the first six months of 2002.

The main reason for the improved profit was the increase in the parent company's commissions income on guarantees.

Commissions income includes EUR 24.1 million in fees received by the parent company for export credit guarantees and special guarantees, EUR 6.1 million in other guarantee commissions, and EUR 2.6 million in handling fees for loans and guarantees. Owing to the increase in the total volume of guarantees, commissions income increased by EUR 7.4 million on the previous year, and was EUR 33.9 million at the end of the period under review.

The interest subsidy paid to Finnvera plc by the Finnish government and by the European Regional Development Fund (ERDF) totalled EUR 10.5 million. Compared to the corresponding period last year, the total interest subsidy decreased by EUR 0.3 million. The basic interest subsidy on credits granted before 1999 totalled EUR 2.0 million. The interest subsidy used by clients directly to lower the interest rates on their loans amounted to EUR 8.5 million (EUR 7.8 million), of which EUR 1.4 million was support from the ERDF and EUR 1.8 million was national interest subsidy associated with the ERDF scheme.

The parent company's credit and guarantee losses for the period 1 January-30 June 2003 totalled EUR 10.2 million, of which the State accounted for EUR 5.0 million. The losses include an increase of EUR 0.4 million in specific credit loss provisions. Credit and guarantee losses for the period 1 January-30 June 2002 totalled EUR 11.8 million, of which the State accounted for EUR 5.6 million. The increase in specific credit loss provisions at that time came to EUR 0.6 million.

Under the export credit guarantee and special guarantee schemes, indemnities of EUR 1.8 million were paid during the period under review. EUR 0.3 million of the loss was offset by the decrease in export credit guarantee provisions; thus, the loss shown in the profit and loss account was EUR 1.5 million (EUR 0.7 million). During the first six months of 2002, indemnities paid had amounted to EUR 4.5 million. At that time, the decrease in export credit guarantee provisions reduced the loss by EUR 3.8 million.

At the end of the period under review, Finnvera's outstanding credits totalled EUR 1,250.1 million. Outstanding domestic guarantees totalled EUR 660.7 million. In addition, environmental guarantees, included in special guarantees, totalled EUR 2.2 million on 30 June. A year ago, Finnvera¿s outstanding credits totalled EUR 1,213.6 million and outstanding domestic guarantees EUR 566.4 million. During the report period, by far the steepest increase was recorded in the volume of guarantees.

The book liability referred to in the Export Guarantee Act was EUR 2,662.9 million as at 30 June 2003 (EUR 2,217.5 million). Outstanding commitments for export credit guarantees and special guarantees (current guarantees and offers given) as at 30 June 2003 totalled EUR 3,825.4 million (EUR 2,814.4 million).

Capital adequacy and fund-raising

At the end of the report period, the Group's own assets stood at EUR 307.5 million. Including the profit for the period under review, the capital adequacy ratio was 14.8 per cent (14.4).

Early in 2003, Finnvera withdrew a loan of EUR 23.8 million from the European Investment Bank.

For further information:
Markku Mäkinen, Managing Director, tel. +358 (0) 20 460 7226
Aarno Järvinen, Director, Financial Services, tel. +358 (0) 20 460 7224