Finnvera Group, Interim Management Statement 1 January–31 March 2024

Finnvera Group, summary Q1/2024 (vs. Q1/2023 or 31 December 2023) 

• Result 54 MEUR (-39) – Loss provisions that have substantially affected the result in recent years were kept almost unchanged during the period under review.
• Result by segment: result of the parent company Finnvera plc’s SME and midcap business stood at 6 MEUR (15) and that of Large Corporates business at 34 MEUR (-61). The impact of Finnvera’s subsidiary, Finnish Export Credit Ltd, on the Group’s result was 13 MEUR (7).
• The parent company Finnvera plc’s result for domestic operations was 8 MEUR (7). The separate result for the parent company’s export credit guarantee and special guarantee operations was 32 MEUR (-52).
• Total liabilities of the parent company Finnvera plc increased by 6% to EUR 27.6 bn (26.2).
• Balance sheet total EUR 14.3 bn (14.3) – change 0%.
• Contingent liabilities stood at EUR 18.0 bn (16.4) – increased by 9%.
• Non-restricted equity and the assets of the State Guarantee Fund, that is, the reserves available for covering the Group’s losses, totalled EUR 1.9 bn (1.9) – increased by 3%.
• The expected credit losses based on the balance sheet items, standing at EUR 1.2 bn (1.2) – change 0%.
• Equity ratio improved by 0.3 percentage points to 9.6% (9.3%).
• Expense-income ratio improved by 3.0 percentage points to 18.2% (21.2%).
• The NPS index (net promoter score), measuring customer satisfaction, increased by 64 points, reaching a record level of 90 points (26). The NPS index improved from the comparison period in all business areas.

CEO Pauli Heikkilä:

“The Finnish economy is still in recession. In the first quarter of the year, this was reflected in the increase in payment delays in domestic financing, bankruptcies, non-performing liabilities and liabilities subject to debt collection. However, the rise in risk indicators was moderate.

In January–March, Finnvera granted domestic loans and guarantees amounting to EUR 0.2 billion (0.5). 92% of the granted financing went to priority areas identified in Finnvera’s strategy: start-ups and companies seeking growth and internationalisation; investments; transfers of ownership; export and delivery projects; and SME guarantee projects. The annual fluctuation is explained by the fact that, in early 2023, the amount of working capital financing provided for large corporates in domestic financing was clearly higher than in the period under review.

In January–March, Finnvera granted EUR 15 million (0) of Climate and Digital Loans, developed in cooperation with the European Investment Fund to accelerate the clean transition. The granting of loans drawing on the InvestEU facility began in June 2023.

In January–March, Finnvera granted export credit guarantees, export guarantees and special guarantees amounting to EUR 1.6 billion (2.7). In the first quarter, demand for export credit guarantees was dispersed in different sectors. Export financing typically targets the export trade of capital goods, and the annual volume of financing is always affected by the timing of individual large export transactions. The outlook for cruise shipping, one of the most significant sectors in terms of Finnvera’s responsibilities, has continued to improve. The sector’s recovery from the difficulties caused by the coronavirus pandemic has continued.

During the period under review, demand for export credits was very low, and Finnvera granted export credits amounting to one million euros (418). Demand for export credits has been substantially lower in recent years than in the pre-pandemic years. An increasing number of export transactions are financed by banks to which Finnvera grants guarantees.

From the beginning of 2024, Finnvera was again given a mandate to grant export credit guarantees to Ukraine as part of Finland’s national plan for the reconstruction of Ukraine. Export credit guarantees protect Finnish companies exporting to Ukraine against risks. There has been demand for such guarantees in the first quarter of the year.

The Finnvera Group’s result for January–March showed a profit of EUR 54 million (-39). The loss provisions that have substantially affected the result in recent years were kept almost unchanged during the period under review. In 2023, the loss provisions for both cruise shipping and the exposure in Russia could be partially reversed. Finnvera’s exposure in Russia has decreased by more than 90 per cent since the start of the Russian war of aggression due to repayments. At the end of March 2024, the liabilities stood at EUR 93 million compared with EUR 97 million at the end of the previous year.

The overhaul of the legislation applicable to Finnvera set out in the Government Programme, which the company considers very important for developing its operations, has been launched. The reform will also enable ensuring the competitiveness of export financing in the future.

Exports are of great importance to the Finnish economy. The Trade Facilitators Finnvera appointed to their roles in early 2024 aim to bring together foreign buyers and Finnish exporters and to promote trade using Finnvera’s export financing, in close collaboration with Business Finland. The aim is also to increase the number of medium-sized midcap companies in Finland in cooperation with the new Tesi Group.

The financing sector can contribute substantially to sustainable development and the fight against climate change. In its climate targets, Finnvera is committed to measures that promote the goal of the Paris Climate Agreement of limiting global warming to 1.5 degrees. In accordance with its strategy, Finnvera uses financing to encourage companies to invest and thus be part of solving climate challenges.

We will continue to develop our services in a customer-oriented manner. In early 2024, the NPS score, which describes our clients’ willingness to recommend us, was at a record high level of 90 points.

The economy has been forecast to pick up towards the end of the year, but there is still a lot of uncertainty about the outlook. At the moment, high expectations are placed on the reduction of key interest rates.”

Finnvera Group

Financing granted 1−3/2024 (vs. 1−3/2023)

• Domestic loans and guarantees: EUR 0.2 bn (0.5), change -58%.
• Export credit guarantees and special guarantees, incl. SME and midcap export credit guarantees: EUR 1.6 bn (2.7), change -43%.
• Export credits: EUR 0.0 bn (0.4), change -100%.
  • The credit risk for the subsidiary 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.

Outstanding commitments 31 March 2024 (vs. 31 December 2023)

• Domestic loans and guarantees: EUR 3.0 bn (3.0), change -2%.
• Export credit guarantees and special guarantees, incl. SME and midcap export credit guarantees: EUR 24.7 bn (23.2), change 6%.
  • Drawn exposure: EUR 14.3 bn (14.0), change 2%, of which Large Corporates’ cruise shipping exposure EUR 7.6 bn (7.3)
  • Undrawn exposure: EUR 4.2 bn (4.5) and binding offers EUR 6.3 bn (4.7), in total EUR 10.4 bn (9.2), change 13%, of which Large  Corporates’ cruise shipping exposure in total EUR 4.7 bn (4.6 bn).
• Export credits drawn: EUR 7.1 bn (7.3), change -2%.

Financial performance

The Finnvera Group’s result for January–March 2024 was EUR 54 million (-39). The loss provisions that have substantially affected the result in recent years were kept almost unchanged during the period under review. Compared to the comparison period in the previous year, the financial performance was particularly affected by lower realised credit losses and better net interest income. In 2023, it was possible to partially reverse loss provisions especially for cruise shipping and exposure in Russia due to the improved outlook in the shipping sector and substantial repayments of liabilities in Russia. In the period under review, the credit risk of these exposures and the need for loss provisions are not expected to have changed substantially.

During the period under review, the Finnvera Group’s realised credit losses amounted to EUR 16 million (96). The expected losses increased by EUR 3 million, whereas in the comparison period they decreased by EUR 3 million. The State’s loss compensation covering these losses amounted to EUR 7 million (2). The realised losses and the change in the expected losses totalled EUR 12 million during the period under review, whereas in the comparison period the amount was EUR 90 million.

During the period under review, the Group’s net interest income totalled EUR 35 million (25) and its net fee and commission income was EUR 43 million (45). In particular, a higher market interest rate level improved the net interest income from the comparison period in the year before.

After the result of the period under review, as per 31 March, the parent company’s reserves for domestic operations and export credit guarantee and special guarantee operations for covering potential future losses amounted to a total of EUR 1,718 million (1,676). The reserves, covering also the credit risk for the export credits granted by the subsidiary, consisted of a reserve for domestic operations of EUR 413 million (405), a reserve 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 1,304 million (1,272). The State Guarantee Fund is a fund not included in the state budget, the funds of which include the funds that have accumulated in the activities of Finnvera’s predecessor organisations. Under the Act on the State Guarantee Fund, the Fund covers the result showing a loss in the export credit guarantee and special guarantee operations if the reserve funds in the company’s balance sheet are not sufficient.

The non-restricted equity of the subsidiary Finnish Export Credit Ltd amounted to EUR 211 million (198).

Risk position of financing

At the end of March, the exposure for drawn domestic loans and guarantees amounted to EUR 2,265 million (2,313), decreasing by EUR 48 million from the end of the previous year. The general deterioration in the economic situation has affected the quality of the credit portfolio of domestic financing, but so far substantial credit losses have been avoided. Risks pertaining to individual clients have remained at a reasonable level, although the amount of arrears in euros has increased compared to the turn of the year. Of the exposures, 82 per cent fall within the intermediate credit risk categories B- – BB+.

At the end of March, the total exposure arising from export credit guarantees and special guarantees was EUR 24,706 million (23,211). Approximately 75 per cent of the outstanding export credit guarantees and special guarantees totalling EUR 18,446 million (18,468) and binding offers totalling EUR 6,260 million (4,743) were associated with transactions in EU Member States and OECD countries. Altogether, 34 per cent of the exposure was in risk category BBB-, which reflects investment grade, or in better risk categories.

There were no major changes in the risk distribution of export credit guarantees during the period under review compared to the end of 2023. The biggest risks were still related to the cruise shipping and shipyard sectors and exposures in Russia.

Other events during the period under review