Interim Report 1 January–30 June 2009 - Brisk demand for financing
During the first six months of 2009, demand for Finnvera’s domestic financing exceeded the euro amount for the corresponding period a year ago by 61 per cent. The number of applications for export credit guarantees and special guarantees increased by 133 per cent when compared to the first half of 2008. Credit and guarantee losses in domestic financing rose from the figure recorded the year before; in consequence, the result for domestic operations and the Finnvera Group’s financial performance for the period under review showed a loss. The separate result calculated for export credit guarantees and special guarantees was positive.
“Companies have been particularly keen to apply for working capital because of the tighter economic and financial situation. Some financing is still sought for investments, but clearly less than in the past few years,” says Executive Vice President Veijo Ojala, who is responsible for Finnvera’s domestic regional financing.
The total value of the loans and domestic guarantees granted by Finnvera was EUR 698.6 million (EUR 513.6 million), or 36 per cent more than in the first six months of 2008. Altogether 60 per cent of the financing was granted to industrial sectors, in particular to the mechanical engineering industry.
In March 2009, Finnvera supplemented its product selection by introducing products for counter-cyclical financing; these have been in great demand. Counter-cyclical loans and guarantees can be granted to enterprises with at most 1,000 employees that have encountered financial difficulties because of the recession.
Counter-cyclical loans and guarantees accounted for EUR 137.1 million of all domestic financing provided. In all, they were granted to 327 enterprises. – In counter-cyclical financing, Finnvera can take higher risks than normally, Ojala points out.
More applications in financing for exports
During the first half of the year, the global financial crisis was reflected in the demand for Finnvera’s financing products for exports. In January–June, demand for export credit guarantees and special guarantees totalled EUR 3,600.6 million. The number of applications rose by 133 per cent, but the total sum applied for fell by 51 per cent from the figure recorded the year before. The reason for this is that some large projects were under processing during the first half of 2008.
The value of export credit guarantees and export guarantees offered by Finnvera totalled EUR 3,820.8 million (EUR 4,000.4 million). The biggest guarantee offers were given to the telecommunications and shipyard sectors. The value of guarantees that came into effect totalled EUR 2,258.7 million (EUR 1,047.8 million). The number of guarantees that came into effect was 49 per cent higher than during the corresponding period the year before.
“Finnvera is still needed to guarantee political and commercial risks and to share risks. We can now also participate in guaranteeing export transactions with a payment term of under two years in EU Member States and in other Western industrialised countries. This, too, increases the demand for our export credits guarantees,” says Executive Vice President Topi Vesteri, who is responsible for Finnvera’s export financing.
During the period under review, a temporary refinancing model was taken into use in export financing. In this model, a bank providing financing for a foreign buyer can transfer part of the financing to the balance sheet of Finnish Export Credit Ltd, a subsidiary of Finnvera’s. The value of refinancing offers given by the end of the period under review totalled EUR 500 million.
Financial trend
The economic situation and weaker risk ratings among Finnvera’s client enterprises had a major impact on Finnvera’s credit risks. The State of Finland compensates Finnvera for some of the losses arisen from domestic credits and guarantees. Owing to the amendment made to the State’s commitment to compensate for credit and guarantee losses, the State’s compensation was EUR 4.0 million less than during the corresponding period in 2008.
The Finnvera Group’s result for the period under review was EUR –2.7 million. For the same period last year, there had been a profit of EUR 29.7 million. Thus, financial performance declined by EUR 32.4 million when seen against the first half of 2008.
The main items sapping the financial performance of the Finnvera Group were the rise in impairment losses on financial assets and the rise in guarantee losses, altogether by EUR 31.9 million, of which Finnvera plc’s share was EUR 31.3 million.
Finnvera plc’s final losses for credits and guarantees in domestic financing during the period under review came to EUR 25.5 million (EUR 19.1 million). When cancellations of losses recorded earlier, individually and collectively assessed impairment losses on loans, and provisions for guarantee losses are taken into account in the calculation, the losses on credits and guarantees totalled EUR 45.2 million. The State’s compensation for the losses was EUR 8.7 million.
Losses on export credit guarantees and special guarantees totalled EUR 6.6 million; these consisted mainly of a change in the provision for guarantee losses. The separate result calculated for export credit guarantees and special guarantees was positive for the period under review.
The subsidiaries’ credit losses came to EUR 0.6 million.
When the annual income statements for Finnvera’s domestic financing and export financing show a profit, the profits are transferred to two separate funds on the company’s balance sheet: the fund for domestic operations and the fund for export credit guarantees and special guarantees. Correspondingly, when the annual income statements show a loss, losses incurred in domestic operations and losses incurred in export credit and special guarantee operations are covered separately from these two funds. There is no cross-subvention between the funds. On 30 June 2009, the assets of the funds totalled EUR 288 million. The State Guarantee Fund and the State of Finland are responsible for Finnvera’s losses only if the losses cannot be covered by assets in these two funds.
“The financial situation will continue to be challenging in the near future. Credit risks in domestic operations will remain high, and risks will also be realised as credit losses more than before. By working together with other financiers, we strive to restore the profitability of enterprises whose operations have run into difficulties. So far, export credit guarantees have given rise to relatively few losses, but continuing economic difficulties will increase the risk of losses,” says Finnvera’s Managing Director Pauli Heikkilä.
Future prospects
Pauli Heikkilä predicts that the economic recession and the situation prevailing on the financial market will keep demand for Finnvera’s financing high in Finland, especially as concerns counter-cyclical financing. Finnvera’s role in supplementing the financial market gains added importance when the principal goal is to continue and develop the operations of viable Finnish enterprises beyond the recession. Finnvera works in close cooperation with private financiers, enterprise organisations, and the Ministry of Employment and the Economy.
As the number of enterprises in difficulties increases, it is likely that credit losses will rise during the second half of the year. Some sectors show positive signs of a slight upturn in demand for exports, as stocks are running out.
It is expected that Finnvera’s outstanding commitments for buyer credit guarantees in capital goods transactions will continue to rise sharply during the second half of 2009 and in 2010, especially in the shipyard and telecommunications sectors, as the offers already given come into effect. Demand for credit insurance is also expected to keep increasing during the second half of 2009. This is because the market situation continues to be challenging and the European Commission granted Finnvera temporary permission in June to guarantee export transactions in EU Member States and other Western industrialised countries when the payment term is under two years.
According to the current estimate, the financial performance for 2009 is likely to fall clearly below that for 2008. However, if more risks materialise than has been anticipated, the situation may change considerably.
Additional information:
Pauli Heikkilä, Managing Director, tel. +358 20 460 7321
Topi Vesteri, Executive Vice President, tel. +358 20 460 7238 (Financing of exports)
Veijo Ojala, Executive Vice President, tel. +358 20 460 7405 (Domestic financing)
Ulla Hagman, Senior Vice President, Finances and IT, tel. +358 20 460 7409
Leena Jaakkola, Senior Vice President, Communications and Marketing, tel. +358 40 352 9332
The Finnvera Group’s Interim Report 1 January–30 June 2009
Finnvera plc is a specialised financing company owned by the State of Finland. It provides its clients with loans, guarantees, venture capital investments and export credit guarantees. Finnvera has official Export Credit Agency (ECA) status.
