Finnvera Group’s Half-Year Report 1 January–30 June 2022

Finnvera Group, Stock Exchange Release 18 August 2022

Finnvera Group’s Half-Year Report 1 January–30 June 2022

In the first half of the year, Russia's invasion of Ukraine impacted Finnvera's financing and increased the credit loss risk – Group result showed a loss of EUR 29 million

Finnvera Group, summary H1/2022 (vs. H1/2021 or 31 Dec 2021)

• Result -29 MEUR (65) – In the first half of the year, credit loss risk of export credit guarantee exposure and loss provisions in Russia increased by 210 MEUR – as yet, there were no grounds for reversing loss provisions made due to the coronavirus pandemic in 2020. 
• Result by segments: profit of the parent company Finnvera plc's SME and midcap business stood at 11 MEUR (11) and the result of Large Corporates business at -65 MEUR (35); the subsidiary Finnish Export Credit Ltd had an impact of 25 MEUR (19) on the Group’s profit.
• The separate result for export credit guarantee and special guarantee operations was -79 MEUR (38).
• Balance sheet total EUR 12.8 bn (12.2) – change 5% was mainly due to short-term funding.
• Contingent liabilities stood at EUR 15.7 bn (15.9) – change -2% was mainly due to the decrease in outstanding domestic guarantees and binding export credit commitments.
• The total exposure of the parent company Finnvera plc decreased to EUR 25.1 bn (25.6).
• Non-restricted equity and the State Guarantee Fund, that is, the buffer reserves in total, decreased to EUR 1.3 bn (1.4).
• Equity ratio decreased by 0.6 pp to 6.5% (7.1%).
• The expected credit losses based on the balance sheet items increased due to the increase in loss provisions in Russia to EUR 1.6 bn (1.4).
• The expense-income ratio improved by 7.8 pp to 18.8% (26.6%).
• Net promoter score (NPS) index, measuring customer satisfaction, 81 (70) – the improvement in the NPS index for Locally operating small companies and Large Corporates boosted the average.

Finnvera Group, H1/2022
Result H1/2022 -29 MEUR H1/2021: 65 MEUR	Balance sheet total 30 Jun 2022 EUR 12.8 bn 31 Dec 2021: EUR 12.2 bn change 5%
Total exposure, the parent company’s domestic, export credit guarantee and special guarantee operations 30 Jun 2022 EUR 25.1 bn 31 Dec 2021: EUR 25.6 bn change -2%	Non-restricted equity and The State Guarantee Fund after H1/2022 result 30 Jun 2022 EUR 1.3 bn 31 Dec 2021: EUR 1.4 bn change -7%
Expense-income ratio H1/2022 18.8% H1/2021: 26.6% change -7.8 pp	Equity ratio 30 Jun 2022 6.5% 31 Dec 2021: 7.1% change -0.6 pp
NPS index (net promoter score) H1/2022 81 H1/2021: 70 change 11 points	Expected credit losses based on the balance sheet items 30 Jun 2022 EUR 1.6 Mrd. e 31 Dec 2021: EUR 1.4 bn change 15%

CEO Pauli Heikkilä:

“Russia's invasion of Ukraine has various negative impacts on the global economy. Central banks are expected to tighten their monetary policies, which may slow down the sharp rise in inflation but also lead to a global recession. The risk of recession is further exacerbated by the contraction of the Chinese economy due to the country's strict Covid-19 policy and the global component shortage.

In January‒June, Finnvera granted domestic loans and guarantees amounting to EUR 0.5 billion (0.9). In line with the Group strategy, most of the financing was allocated to growth companies, innovative enterprises and export companies seeking growth through internationalisation. However, we have seen many domestic investment plans postponed and even cancelled because of the uncertain economic times. Financing for transfers of ownership also decreased. However, as a whole the financing remains at a higher level than before the coronavirus pandemic. The banks have access to higher number of EU financial instruments than before.

The amount of export credit guarantees and special guarantees granted in January–June came to EUR 2.4 billion (1.6). The granting of export credit guarantees to Russia ended on 22 February, which in turn decreased the number of export credit guarantees granted. The annual volume of export financing is always influenced by the timing of individual major transactions. In the first half of the year, large export transactions were financed especially in the telecommunications sector. No new vessel orders were made in cruise shipping, impacted by the coronavirus pandemic. The German shipyard MW Werften and its owners were placed in liquidation, which will also cause losses to Finnvera, as, in 2019, Finnvera guaranteed deliveries Finnish companies made to the shipyard. The final amount of losses will become clear later. Globally, however, there are signs of recovery in cruise shipping, even though Russian military operations cause delays in cruise demand. As yet, there are no grounds for reversing the substantial loss provisions Finnvera made in 2020.

The Finnvera Group’s result for January–June 2022 showed a loss of EUR 29 million, whereas the result for the corresponding period last year showed a profit of EUR 65 million. Due to the increase in the export credit guarantee exposure in Russia, we issued a negative profit warning on 11 March 2022. As a result of the arrangements made due to the war and sanctions, Finnvera's exposure in Russia has decreased by EUR 440 million from the end of 2021. The loss provisions for exposure in Russia recognised in the period under review amounted to EUR 210 million.

The economic outlook for the second half of the year is overshadowed by inflation and the risk of recession. Within its financing authorisations, Finnvera will be able to meeting the financing needs of companies. We can continue to finance large corporates within the framework of the European Investment Bank's EGF guarantee programme. We expect to be able to initiate direct lending to foreign buyers aimed at accelerating export transactions at the end of the year. Responsibility, and climate change in particular, are at the heart of our strategy, and, accordingly, we will soon introduce a special digital and climate loan to finance innovative and digital companies and sustainable development projects.”

Finnvera Group, financing granted and exposure

H1/2022 (H1/2021)

• Loans and guarantees granted: 531 MEUR (918), change -42%
• Export credit guarantees and special guarantees granted: 2,399 MEUR (1,594), change 50%
• Export credits granted: 149 MEUR (346), change -57%
  • The credit risk for Finnish Export Credit Ltd’s export credits is covered by the parent company Finnvera plc’s export credit guarantee.
  • The fluctuation in the amount of export credit guarantees and export credits is influenced by the timing of individual major export transactions.

30 June 2022 (31 December 2021)

• Exposure, drawn domestic loans and guarantees: EUR 2.7 bn (3.0), change -8%
• Exposure, export credit guarantees and special guarantees, incl. SME and midcap export credit guarantees: EUR 22.4 bn (22.6), change -1%
  • Drawn exposure: EUR 13.5 bn (12.1), change 11%, of which Large Corporates’ cruise shipping exposure EUR 5.9 bn (5.4)
  • Undrawn exposure: EUR 7.0 bn (7.4) and binding offers EUR 1.9 bn (3.1), in total EUR 8.9 bn (10.5), change -15%, of which Large Corporates’ cruise shipping exposure in total EUR 5.8 bn (6.4).
• Exposure, export credits drawn: EUR 7.6 bn (7.9), change -5%

Financial performance

Finnvera Group  Financial performance	H1/2022 MEUR	H1/2021 MEUR	Change MEUR	Change %	2021 MEUR
Net interest income	31	27	4	16%	55
Net fee and commission income	107	78	30	38%	167
Gains and losses from financial instruments carried at fair value through P&L and foreign exchange gains and losses	9	-2	12	-	2
Other operating income	74	0	74	-	4
Operational expenses	-25	-22	2	11%	-46
Other operating expenses and depreciations	-3	-5	-2	-37%	-8
Realised credit losses and change in expected credit losses, net	-217	-6	211	-	-11
Operating profit/loss	-23	69	-92	-	164
Profit/loss for the period	-29	65	-94	-	153

The Finnvera Group’s result for January–June 2022 showed a loss of EUR 29 million, whereas the result in the comparison period showed a profit of EUR 65 million. The negative result was due to an increase of EUR 210 million in loss provisions for export credit guarantee exposure in Russia during the first quarter. No major individual final losses were realised in the first or second quarter. No significant recovery in cruise shipping or substantial reduction in the credit risk of guarantee commitments took place during the period under review, so, as yet, there were no grounds for reversing the extensive loss provisions made in 2020. The company actively monitors any changes in risk subjects. In January–June, the expected credit losses increased by a total of EUR 213 million (2), and the final credit losses totalled EUR 16 million (14).

The total exposure in Russia decreased by 45 per cent, from EUR 977 million to EUR 536 million, as a result of the arrangements and early repayments made during the period under review. At the end of June, drawn exposure accounted for EUR 489 million of total exposure.

The net interest income and net fee and commission income improved in January-June compared to the previous year and also compared to the years before the coronavirus pandemic. The net interest income was EUR 4 million higher than in the previous year, especially as a result of gains made by the interest and investment positions. Correspondingly, net fee and commission income increased by EUR 30 million compared to the previous year, which was, in particular, due to the recognition of guarantee premiums received in advance from early repayments of liabilities during the period under review.

The changes in the value of items recognised at fair value through profit or loss totalled EUR 9 million (-2), of which the change in the fair value of liabilities and interest rate and currency swaps accounted for EUR 9 million (-3).

Taking into account the January‒June result, as per 30 June, Finnvera’s domestic and export financing reserves for covering potential future losses amounted to a total of EUR 1,097 million (1,224). The reserves consisted of non-restricted equity for domestic financing of EUR 423 million (399), non-restricted equity for export credit and special guarantee financing as well as the assets in the State Guarantee Fund for covering a loss-making result totalling EUR 674 million (825).

Outlook for financing

Due to the uncertain economic outlook, in the second half of 2022 Finnvera's domestic financing demand may focus more on working capital financing than on SME investments. Banks have access to a higher number of EU financial instruments than before, which may reduce demand for financing from Finnvera. Finnvera aims to utilise the InvestEU guarantee programme to launch a new climate and digital loan in 2022. In particular, the granting of direct export credit to buyers with an aim to accelerate exports of SMEs and smaller export transactions will begin during the second half of the year if the legislative amendment enabling this is approved by Parliament. By diversifying the scope of financing offered, we will further strengthen the support we are providing for the establishment, transfers of ownership, growth and internationalisation of Finnish companies.

We expect the demand for export credit guarantees and export credits in euros to remain at the same level as in previous years, and the prospects for new financing projects are good. As in previous years, the overall demand is affected by the realisation of individual major transactions. Working capital financing for large corporations through the European Investment Bank's EGF guarantee programme will continue until the end of 2022. The granting of export credit guarantees to Russia has been stopped, which may reduce the demand for credit insurance policies. The focus of demand for export financing will probably be on the pulp and paper as well as telecommunications sectors. The outlook for the cruise shipping sector and the demand for export financing are strongly influenced by how the shipping companies recover from the impacts of the coronavirus pandemic.

As stated in financial review Q1/2022, the recovery of cruise shipping from the pandemic as well as the war in Ukraine and the weakened global economic outlook cause significant uncertainty regarding Finnvera Group's profit development in 2022. Changes in the amount of loss provisions and any final losses determine whether the result will show a loss or profit for 2022. However, under the prevailing circumstances, it still remains very difficult to anticipate changes in loss provisions and the realised losses.

Further information:

Pauli Heikkilä, CEO, tel. +358 29 460 2400

Ulla Hagman, CFO, tel. +358 29 460 2458

Half-year report 1 January–30 June 2022 (PDF)

Distribution:

NASDAQ Helsinki Ltd, London Stock Exchange, the principal media, www.finnvera.fi

The half-year report is available in Finnish and English at www.finnvera.fi/financial_reports