Finnvera Oyj - Interim report (Q1 and Q3)

Demand for SME financing rose by over 10 per cent - offers for export credit guarantees doubled

The Finnvera Group's Interim Report for January-September 2011

Key figures for January-September 2011

  -- Loans and domestic guarantees offered: EUR 672 million (Q3/2010: 634
     million)
  -- Export credit guarantees, export guarantees and special guarantees offered:
     EUR 3,295 million (Q3/2010: 1,545 million)
  -- Outstanding commitments in domestic financing: EUR 3,085 million (6/2011:
     3,111 million)
  -- Outstanding commitments in export financing: EUR 10,187 million (6/2011:
     9,549 million)
  -- The Finnvera Group's profit: EUR 48 million (Q3/2010: 45 million)
  -- Finnvera plc's profit: EUR 42 million (Q3/2010: 49 million)
  -- The Finnvera Group's impairment losses on receivables and guarantee losses:
     EUR 44 million (Q3/2010: 35 million)

The needs of SMEs to obtain financing for working capital and the slight
increase in investments raised the demand for Finnvera's financing in
January-September. Demand was 13 per cent higher than a year ago. 

“Today, companies are in very different situations. Many haven't had time to
acquire strong economic buffers after the downturn of 2009. In addition, the
prospects for financial markets and the world economy are uncertain. In the
current economic situation, the decision made by the Cabinet Committee on
Economic Policy to continue counter-cyclical financing next year is highly
justified,” says Pauli Heikkilä, Managing Director of Finnvera. 

The loans and guarantees for domestic financing granted by Finnvera totalled
EUR 672 million, or 6 per cent more than a year ago. The amount of
counter-cyclical financing granted nearly doubled: in all, 307 enterprises
received a total of EUR 148 million. 

Heikkilä says that it has become more difficult to secure long-term, large
export credits on the market. 
“This change is apparently permanent. One side effect of the Basel III
regulatory framework, which was revised in the aftermath of the financial
crisis, seems to be that, increasingly often, the role of banks is to arrange
large export credits. A new permanent export credit transfer model is under
preparation in Finland to improve the competitiveness of capital goods
exporters. Adoption of the model requires legislative amendments, which are
scheduled to come into force early next year,” Heikkilä says. 

The total value of export credit guarantees, export guarantees and special
guarantees offered by Finnvera was EUR 3,295 million. The total sum of offers
more than doubled on the sum for the first nine months of 2010. Financing was
granted for projects in the traditional export sectors, such as
telecommunications, energy and the forest industry. 

Financial trend

In January-September, the Finnvera Group's profit came to EUR 48 million (45
million), or EUR 3 million more than during the same period in 2010. The parent
company Finnvera plc's profit was EUR 42 million, as against EUR 49 million the
year before. Both domestic financing and export financing showed a positive
result. 

Seen against the previous year, the main factors having a positive effect on
the result were the appreciation of the subsidiaries' venture capital
investments, the increase in the parent company's net interest income following
the rise in the general interest level, and the increase in fee and commission
income. The main factors decreasing the result were the parent company's
greater credit and guarantee losses calculated after the State's compensation
for losses. 

In domestic financing, the parent company's losses, impairment losses, and
provisions for credit and guarantee losses amounted to EUR 61 million (44
million). Of this sum, EUR 67 million was credit and guarantee losses
materialised, EUR 4 million was cancellations of losses recorded earlier, and
EUR 2 million was decreases in impairment losses on receivables and in
provisions. Compensation by the State and the European Regional Development
Fund (ERDF) for the losses materialised totalled EUR 21 million (16 million). 

No major losses were recorded in export financing during the period under
review, and no major increases were made in provisions for losses. Losses on
export credit guarantees and special guarantees amounted to EUR 4 million (6
million) during the period under review. 

On 30 September 2011, the parent company's capital adequacy stood at 14.9 per
cent and that of the Group at 15.3 per cent. 

Foreseeable risks and future prospects

Restlessness on the financial market and uncertain prospects for the world
economy will slow down economic growth in Finland, too. The cautious growth in
industrial investments is likely to halt almost completely, as the export
prospects of companies are declining. 

So far, demand for Finnvera's SME financing has not increased on a larger
scale, with the exception of counter-cyclical financing. Some enterprises are
preparing for a declining economic trend; in consequence, financing for working
capital is in greater demand than before. 

Economic uncertainty will continue to reduce demand for exports, as well as
demand for export credit guarantees. Because of the lack of trust on the market
and stricter regulations imposed on banks, banks must raise their capital
adequacy. This is mostly done by reducing long-term lending, which means that
long-term financing will become a bottleneck when financing is arranged for
exports. In Finland, measures are taken to improve the availability of
financing by introducing a new export credit transfer model. In the new model,
Finnvera acquires funds from the market by using State guarantees, and
Finnvera's subsidiary, Finnish Export Credit Ltd, uses these funds to finance
bank-arranged credits to companies. The proposals for this type of financing
are currently discussed by Parliament. 

The number of bankruptcies and companies in distress, as well as Finnvera's
credit losses, may increase during the last quarter of the year if economic
growth comes to a halt. 

Finnvera's profit for the current year is estimated to be lower than in 2010.
However, if more risks materialise at the same time as the economy dips, the
estimated profit may shrink 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


Information on Finnvera's operations in 2011 will be published on 26 January
2012. 
The financial statements and report on operations for 2010 will be published on
Finnvera's website on 20 March 2012.

Attachments:

Osavuosikatsaus_q3_2011_eng.pdf