Demand for Finnvera's financial instruments increased

Preliminary data on Finnvera's operations in 2002

In 2002, 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 reorganizations, such as changes of generation. Investments by SMEs were also a major target of financing. Most of Finnvera's new clients came from the SME sector. In total, clients numbered nearly 26,000. Finnvera's financing contributed to the establishment of some 2,300 new enterprises and to the creation of a total of roughly 9,500 new jobs, which is slightly less than the year before. The total value of guarantee applications for foreign risk-taking was one-fifth higher than in 2001.

During 2002, as in previous years, most growth in Finnvera's domestic financing took place in the sector of guarantees. Guarantees given to credits granted by banks and other financial institutions accounted for more than half of the total financing of EUR 770.2 million provided in 2002. The total sum of financing granted in 2001 had been EUR 708.3 million.

In 2002, guarantees pertaining to foreign risk-taking totalled EUR 1,708.8 million (EUR 1,764.1 million in 2001).

Finnvera's industrial and ownership policy goals

The Ministry of Trade and Industry has defined ownership and industrial policy goals and indicators for Finnvera; these are adjusted annually.

The indicators pertaining to ownership policy measure, for instance, the efficiency of the company's operations and the attainment of its goal of self-sufficiency.

Industrial policy indicators are used to measure Finnvera's success in offsetting deficiencies detected in the operation of the financial market, as well as Finnvera's role in the development of SMEs, in the internationalisation of enterprises, in the promotion of exports, and in the furtherance of the government's regional policy goals .

The amount of the credits and guarantees that Finnvera can grant has been restricted and directed through authorisations based on the State Budget and the Ministry's decisions . The compensation for credit and guarantee losses, allocated to the company through the State Budget, is gradated on regional policy grounds and defines direct risk-taking.

Finnvera's financial statements deal with attainment of the goals set.

DOMESTIC FINANCING

Small enterprises got a larger share of financing

The highest demand for Finnvera's domestic financing came from small enterprises and enterprises at the start of their operations. Altogether 87 per cent of financing was granted to SMEs. Of this total, the amount of financing granted to enterprises employing fewer than 10 people increased by 14.7 per cent. These enterprises accounted for 26.8 per cent of all domestic financing.

Of the financing granted, 13 per cent was used for projects having major regional and industrial policy implications, undertaken by enterprises employing over 250 people.

It is estimated that approximately 9,500 (10,700) new jobs were created in enterprises that received financing from Finnvera. Of these, over 5,100 were created in small enterprises employing fewer than 10 people. The growth in the number of new jobs did not increase as rapidly as before because there were fewer job-creating investments, especially during the latter half of 2002, and a larger share of Finnvera's financing was used for immaterial investments and working capital. The total value of investment projects carried out by enterprises and supported by partial funding from Finnvera was the same as the year before, or EUR 1.8 billion.

Domestic financing was granted to 6,759 enterprises (6,343), of which 3,800 were new clients (3,615). The number of enterprises that had just started their operations was 2,281 (2,357). In all, Finnvera had a total of nearly 26,000 clients (27,000) at year's end. The number of clients fell mainly in the category of micro-enterprises because the bulk of the microloans and loans to women entrepreneurs that had been granted in the mid-1990s were paid back during 2002. In contrast, the number of small and medium-sized client enterprises (employing 10-249 people) increased by 6.9 per cent.

When compared to the previous year, the highest increases in the amount of financing granted were recorded in the areas of the Pori, Vaasa, Tampere and Kajaani Regional Offices.

Aid areas received generous EU funding on regional policy grounds

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 to SMEs totalled EUR 95.6 million (EUR 83.6 million), of which EUR 57.2 million (EUR 51.8 million) was granted to enterprises in Eastern and Northern Finland. Finnvera's ERDF funding contributed to the creation or keeping of 867 (563) enterprises and about 4,300 (3,500) jobs in the Objective regions.

Financing granted to national aid areas totalled EUR 383.4 million (EUR 341.2 million), of which interest-subsidised loans accounted for EUR 156 million.

During 2002, Finnvera and the European Investment Fund (EIF) signed a new agreement. Under this agreement, Finnvera can grant growth and employment guarantees for a total of EUR 131 million in 2003.

Continued increase in the service sector's share of financing

Domestic risk financing granted by Finnvera in 2002 totalled EUR 770.2 million (EUR 708.3 million).

Financing for enterprises providing services for business increased by 39 per cent on the previous year, and financing granted to enterprises in the trade and consumer services sector rose by 19 per cent.

Financing granted to industrial enterprises remained at the same level as in 2001, or at EUR 463.5 million (EUR 462.8 million). Of the financing granted to industry, EUR 155.1 million (EUR 166.7 million) went to the metals and engineering industry. The electronics and electrical industry and the wood-processing industry also received considerable funding.

The value of domestic guarantees granted increased by 11.9 per cent on the previous year, to EUR 361.7 million (EUR 323.1 million). Guarantees for domestic operations amounted to EUR 56.4 million (EUR 53.2 million). The value of micro-guarantees granted rose by nearly 50 per cent, to EUR 19.2 million (EUR 13 million). Using a micro-guarantee, Finnvera usually guarantees 50-75 per cent of the credit given by the bank; however, not more than EUR 85,000.

The value of loans granted totalled EUR 352.1 million (EUR 332 million), of which loans for investments and working capital accounted for EUR 230.9 million (EUR 218.8 million).

Lively demand for entrepreneur loans and internationalisation financing

An entrepreneur loan can be used when an enterprise is being established and during company reorganisations, e.g. when there is a change of generation.

The amount of entrepreneur loans granted in 2002 was record high, EUR 18 million (EUR 10.2 million). Of this sum, 65 per cent was granted to enterprises employing fewer than 10 people. The loans were used for subscribing stock and partners' shares, for raising the share capital and for purchasing stock and partners' shares. In all, 31 per cent of entrepreneur loans were granted to starting enterprises engaged in new business. The rest was used for changes of generation and for other ownership arrangements.

Interest-subsidised special loans granted, on industrial policy grounds, for the establishment and development of SMEs totalled EUR 101.3 million (EUR 98.2 million). Of this sum, microloans for companies employing fewer than five people accounted for EUR 26.6 million (EUR 29.2 million) and loans for women entrepreneurs accounted for EUR 17.3 million (EUR 16.5 million).

Altogether 25 enterprises in 2002 received internationalisation funding, which can be granted to Finnish SMEs for their internationalisation projects. The total sum was EUR 9.4 million. The principal host countries were Russia and Estonia. Other host countries for projects were Sweden, Norway, Denmark, Germany, the UK, Latvia and the Czech Republic.

FOREIGN RISK-TAKING

Applications for foreign risk-taking reached a new record

During 2002, exporters and financiers submitted a total of 291 (292) guarantee applications pertaining to projected export transactions that would involve foreign risk-taking; their value came to EUR 5.2 billion (EUR 4.2 billion).

The value of new guarantee offers totalled EUR 1,708.8 million, or nearly the same as the year before (EUR 1,764.1 million). Industrial countries accounted for an unusually high percentage of all guarantees granted: 40 per cent or EUR 689.3 million. The corresponding figures for Central and Eastern Europe were 23 per cent, or EUR 387.0 million; for Latin America 12 per cent, or EUR 211.5 million; and for Asia 12 per cent, or EUR 200.3 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 29.1 million (EUR 51.9 million). The fall was caused by a single, exceptionally high guarantee offer given in 2001; the transaction fell through, however.

Once the enterprises had carried out their export transactions, the value of guarantees that came into effect in 2002 totalled EUR 745.5 million (EUR 908.1 million). The figure is one-fifth less than in 2001 mainly because the value of guarantees pertaining to the export of machines and equipment in the wood-processing industry was almost EUR 130 million less than in the previous year. Some of the guarantees granted in 2002 will come into effect in 2003.

Of the guarantees that came into effect, Poland accounted for 30 per cent, France for 20 per cent and Thailand for 17 per cent. The guarantees cover political and/or commercial risks pertaining to 41 (37) countries.

The telecommunications sector's share of guarantees that came into effect was 72 per cent. The figures for power generation were 15 per cent and for machines and equipment in the wood-processing industry 2 per cent. The value of guarantees that pertain to the exports of SMEs and that came into effect in 2002 totalled EUR 18.9 million (EUR 25.0 million).

In the shipyard industry, the total value of guarantees that came into effect during the year with regard to tenders and pre-delivery payments associated with export projects was EUR 56.3 million (EUR 200.2 million).

At year's end, altogether EUR 292 million of the risks of export credit guarantees were covered with reinsurance and other similar arrangements. Of this, the arrangements made in 2002 totalled EUR 135 million (EUR 168 million).

FUTURE PROSPECTS

Among Finnvera's goals for this year, Managing Director Markku Mäkinen emphasises the promotion of enterprise activities and measures for securing the financing of SMEs. Growth of service enterprises, in particular, would have a positive impact on the number of new enterprises and new jobs. In addition, balanced regional development is an important challenge for Finnvera, and special attention is paid to measures that can improve the efficiency of how financing is granted on regional policy grounds.

The prospects of export companies remain uncertain, as the economic growth rate is lower than before in the countries of Finland's principal export clients. Demand for Finnvera's export credit guarantees will, however, remain relatively brisk for mobile telephone network investments and for financing projects in the shipyard industry. It is estimated that outstanding commitments in these sectors will continue to grow.

In the financing of both telecommunications and shipbuilding projects, the project-specific commitments are very high; this inevitably increases risk concentrations, while the opportunities for reinsurance are limited. On average, the financial standing of enterprises is weaker than it has been during the past few years; this also increases guarantee risks.

Export companies need to seek trading partners in increasingly difficult markets. This highlights the importance of export credit guarantees. The outstanding commitments concerning guarantees granted for exports to Latin America, Russia and the OECD industrialised countries are expected to increase. In contrast, it is thought that Asia's share will diminish.

For further information:
Markku Mäkinen, Managing Director, tel. +358 (0) 20 460 7226
Veijo Ojala, Director, Field Operations, tel. +358 (0) 20 460 7405 (domestic financing)
Topi Vesteri, Director, Major Customers and Export Credit Guarantees, tel. +358 (0) 20 460 7238 (foreign risk-taking)