The economic downturn started to be visible in Finnvera’s operations and performance

Owing to the exceptionally rapid global crisis affecting the financial markets, Finnvera was needed increasingly often as a risk-sharer in 2008. Both foreign and Finnish banks tightened their lending policies, which increased the demand for Finnvera’s financing. Outstanding commitments increased, and because of the weakening economy, losses from domestic credits and guarantees began rising.

The value of export credit guarantees offered totalled EUR 6.3 billion, or nearly 240 per cent more than in the previous year. Financing for domestic enterprise rose by 15 per cent on the previous year, to EUR 1.0 billion.

Financial performance

The consolidated financial statements and the parent company’s financial statements have been drawn up in accordance with the International Financial Reporting Standards (IFRS) since 2007.

The Finnvera Group’s profit for 2008 was EUR 8.1 million, or EUR 45.0 million less than in 2007 (EUR 53.1 million). The Group companies and associated companies had an effect of EUR –7.1 million on the profit (EUR 7.1 million). The parent company’s profit was EUR 15.2 million, or EUR 30.7 million less than in 2007 (EUR 46.0 million).

The factors contributing to the Group’s performance included a decrease of EUR 9.3 million in fees and commission income and expenses. An increase of EUR 23.8 million in Finnvera’s share of impairment losses and guarantee losses.

The Group’s net interest income was EUR 62.6 million, of which the interest subsidies received from the State of Finland and the European Regional Development Fund (ERDF) accounted for EUR 17.7 million (EUR 17.8 million).

The Group’s fees and commission income totalled EUR 59.6 million. The Group’s administrative expenses totalled EUR 41.1 million (EUR 42.1 million), of which personnel expenses accounted for 67 per cent.

Rising losses

At the end of 2008, the parent company’s credit portfolio totalled EUR 1,382.3 million. During the year, the credit portfolio increased by EUR 13.4 million and the domestic guarantee portfolio by EUR 55.4 million. At the end of the financial period, domestic guarantees totalled EUR 882.8 million. Outstanding commitments arising from export credit guarantees and special guarantees (current commitments and offers given) totalled EUR 8,292.5 million (EUR 4,980.2 million).

Before the credit loss compensation paid by the State, the parent company’s impairment losses and guarantee losses came to EUR 84.0 million (EUR 44.4 million). Compared against previous years, impairments and losses rose markedly during the year under review. The main reasons for the rise were the general weakening of the economy and the materialisation of some individual, fairly large credit and guarantee losses. Losses in export financing continued to be low.
“Owing to the economic recession and the rising number of bankruptcies and enterprises in distress, losses are likely to remain at a high level in 2009 as well,” predicts Managing Director Pauli Heikkilä.

Capital adequacy and acquisition of funds

At the end of 2008, the capital adequacy ratio of the Finnvera Group was 15.7 per cent. The target set for capital adequacy is 12–20 per cent. Capital adequacy has been calculated using the Basel II standard method.

The parent company’s long-term borrowings totalled EUR 138.2 million.

Future prospects

Uncertainty on the financial market will increase the demand for Finnvera’s financing in Finland. With slower economic growth, the emphasis of financing will shift from investments to working capital.

Among industrial enterprises, the volume of orders on hand will continue to decrease during the first half of the year. The situation of service enterprises will also weaken, but their prospects are still slightly brighter thanks to domestic demand, which will remain reasonably good.

“At Finnvera, the weaker economic situation is seen as an increase in the number of financing applications. During the first weeks of March the total value of domestic financing applications received has risen already 49 per cent greater than at the same time last year,” Pauli Heikkilä says.

During the first few months of 2009, the global economic crisis has deepened further. According to Finnvera’s estimate, exports covered by means of export credit guarantees will account for a higher share of total exports. “As exports diminish, we expect the total value of applications for export credit guarantees to recede from the record-high level the year before. Instead, the number of applications is likely to increase,” Heikkilä estimates.

At the outset of 2009, the number of claims based on short-term export credit guarantees has been on the rise, for instance, in Russia and Turkey, because of buyers’ difficulties in meeting their payments. So far the sums have been small. Finnvera has not yet encountered any disruptions in payments with respect to export credits for capital goods exports, but Finnvera’s counterparts abroad have already reported increasing payment delays. The availability of financing has fallen everywhere, in particular on the emerging markets. This increases the country, bank and enterprise risks existing in Finnvera’s outstanding commitments for export credit guarantees.

According to the current estimate, the financial performance for 2009 is likely to fall below that for 2008. However, if more risks materialise than has been anticipated, the situation may change considerably.

Finnvera’s Annual Review 2008 and Financial Review 2008 are available on Finnvera’s website, at > Finnvera > Press Releases and Reports > Reports

Additional information:
Pauli Heikkilä, Managing Director, tel. +358 20 460 7321
Ulla Hagman, Senior Vice President, Finances and IT, tel. +358 20 460 7409
Leena Jaakkola, Senior Vice President, Communications and Marketing, tel. +358 20 460 7232