Demand for financing focused on exports, working capital and start-ups

Demand for Finnvera’s domestic financing has returned to a more customary level after last year’s record-high demand. Measured by the sums involved, demand was nearly 40 per cent lower than during the first half of 2009. Also when measured by the number of applications, demand for domestic financing fell, but was still higher than in the years preceding 2009. In contrast, demand for export credit guarantees and special guarantees rose clearly during the first six months of the year when compared against the same period in 2009; the total value of applications was over 10 per cent higher and the number of applications nearly 50 per cent higher than last year. The number of bankruptcies among Finnvera’s client enterprises decreased, and losses in both domestic and export financing were smaller when compared against the first half of 2009. Operations involving both domestic financing and export credit and special guarantees yielded a good result during the first six months of the year.

“The uncertain economic situation was reflected in the demand for domestic financing. Investments by SMEs are still modest, and most of our financing was used for working capital. The rise in the number of starting enterprises was a positive feature,” says Executive Vice President Veijo Ojala. During the first half of the year, Finnvera provided financing for 2,100 start-ups; this was 9 per cent more than in the first half of 2009. The financing granted to start-ups totalled EUR 122.1 million, or 11 per cent more than the year before.

In all, the loans and domestic guarantees granted by Finnvera amounted to EUR 469.8 million, or almost one third less than during the same period in the previous year. Of the financing granted, 57 per cent was targeted at industrial sectors, in particular the manufacture of metal products.

Recession felt among SMEs

Finnvera has analysed its client enterprises’ financial statements for 2009. On the basis of preliminary data, the recession has had very different impacts in different sectors. While the median turnover in the metal and wood industries fell by about 20 per cent compared to the previous year, enterprises engaged in trade and consumer services and in services to business were even able to show a slight increase in their turnover.

Business profits declined in all sectors; the most rapid decline was recorded in the metal and wood industries. The median for the business profits of companies was still slightly positive. As turnovers shrank, the ratio of debts to turnover rose even when no extra financing was sought.

Demand for export financing increased

Demand for export credit guarantees and special guarantees in January–June 2010 totalled EUR 4,050.2 million (3,600.6 million). The total value of applications increased by 12 per cent on the previous year’s figure, while the number of applications rose by 48 per cent.

The financing offered by Finnvera for export transactions totalled EUR 1,071.8 million (3,820.8 million). The total value of offers fell by 68 per cent from the figure recorded the year before, but the number of offers rose by 64 per cent owing to the temporary permission given by the European Commission to grant credit insurance for exports to industrialised countries even when the payment term is under two years.

“Finnvera’s relative share of export financing remained higher than average. Commercial financial markets have become more active. Therefore we do not expect this year to reach the same record volumes in export financing as in 2008 and 2009,” says Executive Vice President Topi Vesteri.

A refinancing model, where 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, will still be in use in export financing in 2010. The total value of refinancing offers given during the period under review was EUR 2.9 billion, but only a small percentage of this is expected to be realised.

Financial trend

The Finnvera Group’s profit for the period under review totalled EUR 26.2 million, or 28.9 million more than during the corresponding period in 2009 (–2.7 million). The parent company’s share of the profit was EUR 29.6 million (–0.1 million) while the subsidiaries’ share was EUR –3.4 million (–2.7 million). The parent company’s domestic financing and export financing both showed a positive result for the first six months of 2010. Domestic credits and guarantees accounted for EUR 1.4 million of the profit, whereas EUR 22.5 million accumulated from export credit guarantees and special guarantees. The rest of the parent company’s profit came from other operating income and from a tax refund.

The factors having the greatest effects on the Group’s improved financial performance were the net increase of EUR 6.8 million in the parent company’s fee and commission income and expenses, and the decline of EUR 16.7 million in impairment losses on receivables and in guarantee losses.

The verified final losses on credits and guarantees in domestic financing came to EUR 29.9 million (45.2 million) while the losses on export credit guarantees and special guarantees totalled EUR 5.8 million (6.6 million). The investment losses incurred by Seed Fund Vera Ltd came to EUR 1.0 million (0.6 million).

On 30 June 2010, the parent company’s capital adequacy was 14.3 per cent and that of the Group 14.8 per cent.

Future prospects

According to Finnvera’s Managing Director Pauli Heikkilä, a turn in the economy seems to have taken place during late spring together with a rise in export demand. However, it will still take some time before the upswing in the export transactions of large companies and increased requests for tender are concretised as deals and financing needs among SMEs. Several investments in renewable energy are being planned but their launch seems to be waiting for government decisions about energy subsidies. Company acquisitions and various ownership arrangements are gaining momentum. The increase in investments has been modest so far. Prospects have not improved much for companies that have already been in difficulty, and credit losses may rise towards the end of the year.

“Finland’s capital goods exports have started to revive, which helps maintain export demand. At Finnvera, outstanding commitments pertaining to the exports of telecommunications networks, in particular, are increasing. Banks are uncertain about the details of the new bank regulation system under preparation and its effects on the market. This makes it more difficult to arrange long-term enterprise financing and financing for the buyers of capital goods exports, even when collateral is available. Active demand for short-term credit insurance continues. This implies that there are still market failures in the availability of credit insurance. The European Commission is expected to issue a stand on the provision of credit insurance by public guarantee institutions in industrialised countries.”

According to the current estimate, the financial performance for 2010 is likely to be better than that for 2009. 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

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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.