Economic crisis increased demand for Finnvera's financing
Preliminary data on operations in 2009
Last year, demand for Finnvera’s financing was greater than ever before. Demand for domestic financing peaked during the first months of the year and for export financing towards the end of the year. A factor contributing to the greater demand was the introduction of counter-cyclical loans and guarantees for domestic financing in March. In export financing, the greatest rise in demand was noted in short-term credit insurance for exports to industrialised countries, which became possible at the beginning of July.
The downturn in the global economy that had started the year before and the consequent changes on the financial market set the tone for 2009.
“The recession was reflected in our client companies in different ways. Major export companies witnessed an almost complete halt in demand, forcing them to implement radical adjustments to their operations. As to SMEs, the consequences depended on the sector. Especially among subcontractors for exporters, the changed situation became evident quickly, whereas for many smaller enterprises operating on the domestic market the effects began later,” says Managing Director Pauli Heikkilä.
During the year, Finnvera financed enterprises’ domestic operations by nearly EUR 1.2 billion, which was 16 per cent more than the year before. Counter-cyclical financing was granted to over 500 enterprises, in total EUR 187.9 million. The supply of products for microfinancing also increased markedly.
The total sum of offers for export credit guarantees fell by about one third, but owing to the availability of credit insurance for exports to industrialised countries, the number of offers nearly quadrupled. Offers for export credit guarantees totalled EUR 4.4 billion (6.3 billion).
The number of clients increased by nearly 1,000, totalling over 28,400 at year's end.
SMEs needed working capital
“The poor availability of bank financing for SMEs was reflected in the demand for Finnvera’s financing especially during the first half of the year, when demand was as much as 60 per cent higher than the year before. The reasons underlying this major upturn in financing within one year were the financial crisis and the subsequent recession, as well as the financing of some large projects,” Executive Vice President Veijo Ojala explains.
The structure of financing projects changed considerably with the recession. The greatest demand was recorded in financing for working capital, whereas the number of investments fell clearly. As there were fewer company reorganisations during the recession, the number of Entrepreneur Loans granted also decreased. However, the total value of projects financed was slightly greater than in 2008, exceeding three billion euros.
Financing for industry increased the most, by about EUR 121.6 million, or 20 per cent. The most prominent industrial sectors in this respect were the metals and wood product industries, for which counter-cyclical financing was particularly important.
Among regions, demand for financing increased rapidly in Uusimaa, where more counter-cyclical financing was granted than anywhere else. Similarly, substantial increase in financing was recorded in Kymenlaakso, Central Finland, Northern Karelia and Northern Savo. Regions eligible for assistance on regional policy grounds also received more financing than in 2008.
Despite the recession, Finnvera provided financing for nearly 3,500 new start-ups; this had also been set as the target. It is estimated that the projects financed will generate about 9,200 new jobs. This is clearly less than the estimated annual numbers of new jobs resulting from projects financed before the recession because for many companies, the adaptation of business and maintaining existing jobs weighed more than the creation of new jobs.
Demand continued to be high for early-stage venture capital investments. Business angels became increasingly active, and the number of private individuals investing in early-stage enterprises and registered for the service exceeded 130 during the year under review.
A brisk year for export credit guarantees
In 2009, the numbers of guarantee applications, new guarantee offers and guarantees that came into effect were the second highest within the past decade. The number of applications for guarantees was over 300 per cent greater than the figure in 2008, says Tuukka Andersén, Director of Finance.
Telecommunications accounted for 66 per cent of all guarantee offers given. Of individual countries, the most guarantees were granted for exports to Japan, Brazil, Russia and India.
The value of guarantees that came into effect totalled EUR 3.8 billion (3.8 billion). Telecommunications and shipping each accounted for about one third of the new foreign risk-taking that came into effect.
A busy year in the credit insurance business
The short-term credit insurance business brought Finnvera new export credit guarantee clients and new countries for guarantees. By the end of the year, applications for guarantees had been filed and guarantees had been granted for exports to 31 industrialised countries, as well as to customary political risk countries. The greatest numbers of applications were filed for exports to Italy, the UK, Spain, France, the USA, Sweden and Lithuania. Exporters in the wood product industry were the most active in applying for credit insurance.
Guarantees were granted to 70 applicants, for a total value of EUR 57.6 million. Demand for credit insurance for export transactions in Russia has also been more lively than normally.
The shipyard industry: a pivotal sector for domestic and foreign risk-taking
Finnvera participates in the pre-delivery and post-delivery financing of the world's largest cruise vessels, the Oasis of the Seas and the Allure of the Seas. The Oasis of the Seas was delivered from the Turku shipyard in October 2009, and Finnvera has granted a Buyer Credit Guarantee for its post-delivery financing.
The sister vessel, the Allure of the Seas, will be delivered from the Turku shipyard of STX Finland Oy in November 2010. Through a Buyer Credit Guarantee, Finnvera also participates in the post-delivery financing of this vessel. When these guarantees are included, Finnvera’s outstanding commitments for the Royal Caribbean Cruises shipping company will rise to about EUR 1.5 billion.
Refinancing of export credits
Refinancing gives banks the opportunity to offer long-term export financing independent of the banks’ acquisition of funds. In refinancing, a bank that provides financing for a foreign buyer can transfer an export-related buyer credit to be financed by Finnish Export Credit Ltd, a subsidiary of Finnvera’s, if liquidity problems on the market have made the bank’s own acquisition of funds more difficult.
There was less demand for refinancing than had been expected. During 2009, Finnish Export Credit signed one refinancing agreement worth EUR 280 million. At year’s end, the total value of refinancing applications submitted to Finnish Export Credit was EUR 2.5 billion; refinancing offers totalled EUR 0.9 billion.
Future prospects
Demand for financing is expected to slow down in early 2010, as enterprises are reluctant to make investments. Most sectors have plenty of unused capacity for increasing production. Rising demand on the export market will revive the metals and wood industries, in particular.
The number of SMEs in distress and the number of bankruptcies may still increase, especially on the domestic market.
Orders for exports will start to revive gradually. However, the revival is slow and varies from one sector to another. In many sectors, overcapacity or sufficient capacity postpones the launching of new investments. Finnvera’s relative share of export financing will remain greater than the average, but, owing to the reactivation of the commercial financial markets, we no longer expect to reach the record-high volumes of 2008 and 2009.
On the basis of the existing offers and the projects under processing, it is thought that the principal outstanding commitments for export credit guarantees that come into effect in 2010 will be associated with the exports of telecommunications networks and ships.
Finnvera’s financial statements and annual report for 2009, as well as the report on corporate social responsibility, will be published on 23 March 2010 on the website www.finnvera.fi.
Additional information:
Pauli Heikkilä, Managing Director, tel. +358 20 460 7231
Veijo Ojala, Executive Vice President, tel. +358 20 460 7405 or +358 400 672 401 (Domestic regional financing)
Tuukka Andersén, Director of Finance, tel. 020 460 7351 or +358 40 593 2449 (Financing of exports)
Annamarja Paloheimo, Senior Vice President, tel. +358 20 460 7267 or +358 50 309 7368 (Financing for growth and internationalisation)
Leena Jaakkola, Senior Vice President, Communications and Marketing, tel. +358 20 460 7232 or +358 40 352 9332
