Half-Year Report of the Finnvera Group for 1 January–30 June 2017 - Rising export industry orders have increased demand for Finnvera’s export financing
The upturn in the Finnish economy and the rise in export industry orders have increased the demand for Finnvera’s export credit guarantees and export credits. The ceilings for Finnvera’s export credit guarantees and the authorisation to finance export credits were raised from the start of 2017 to help the company meet the increased demand especially in ship financing. Raising the ceilings for Finnvera’s and export credits proved useful during the first half of the year. The higher ceilings were really needed, not only for securing new large orders but also, for instance, in the telecommunications sector. Demand for SME and midcap financing remained steadier during the first half of the year. The Group’s financial performance was strong in the first six months of the year. The profit was EUR 57 million (-7 million).
The maximum amounts of Finnvera’s export credit guarantees and export credits were raised from the beginning of 2017. The authorisation to grant export credit guarantees was raised to EUR 27.0 billion, while the authorisation to grant export credits was raised to EUR 22.0 billion. According to an external evaluation of Finnvera’s activities commissioned by the Ministry of Economic Affairs and Employment, the company’s risk management is at an excellent levelinternationally. When granting financing, Finnvera manages risks through careful analysis. Exposure is monitored constantly and, whenever possible, protective measures are taken using for instance reinsurance.
During the period under review, Finnvera’s funding responded to the increased demand for export credits. In May, Finnvera issued a 15-year bond of EUR 750 million, which attracted a great deal of interest. By means of a private placement, the bond sum was raised by EUR 100 million at the end of June. This has the longest maturity among the bonds issued by Finnvera to date.
Business operations and the financial trend
The value of the export guarantees and special guarantees offered by Finnvera in January–June totalled EUR 6.3 billion, or over five times more than during the corresponding period the year before (1.2 billion). Significantly more export credits were also offered. The value of export credits offered by Finnvera in January–June totalled EUR 5.7 billion (0.5 billion). Some large individual projects for instance in the shipbuilding and telecommunications sectors contributed to the growth.
Finnvera continued to speed up the financing of small export transactions by launching the Receivables Purchase Guarantee, which is suitable for short-term export transactions of less than EUR two million. The goal is to boost financing and to promote the operating potential of Finnish export companies of all sizes.
The total exposure for export credit guarantees and special guarantees, including current exposures and offers given, totalled EUR 22.4 billion at the end of June (18.4 billion). Total exposure increased by 22 per cent during the period under review. The increase was attributable, in particular, to the rise in offers given. Current exposure accounted for EUR 15.8 billion of the total exposure at the end of June, or only 2 per cent more than at the start of the year. At the end of June, the exposure included in the maximum authorisation of EUR 27 billion for export credit guarantees totalled EUR 17.2 billion (14.4 billion).
In January–June, the demand for SME and midcap financing was slightly higher than the year before. However, as financing was available on market terms, the volume of loans and guarantees offered during the period under review was 6 per cent less than in the previous year. Domestic loans and guarantees in SME and midcap financing stood at EUR 2.2 billion at the end of June; this was 2 per cent less than at the start of the year. SME and midcap financing still focuses on working capital, but a positive feature is that financing is now more closely targeted at investments and growth enterprises. During the period under review, Finnvera continued its well-received campaign to accelerate transfers of ownership in SMEs. The goal is to increase the number of growth enterprises through transfers of ownership. By the end of June, Finnvera contributed to the financing of ownership arrangements for nearly 550 enterprises, which was 3 per cent more than the year before. Expressed in euros, financing for ownership arrangements was 18 per cent less than during the same period in 2016.
|1 Jan–30 Jun 2017||1 Jan–30 Jun 2016||Change %|
|Offered financing, MEUR|
|Loans and guarantees||454||483||-6 %|
|Export credit guarantees and special guarantees||6 262||1 226||411 %|
|Export credits||5 748||477||1105 %|
|30 Jun 2017||31 Dec 2016||Change %|
|Outstanding commitments, MEUR|
|Loans and guarantees||2 226||2 261||-2 %|
|Export credit guarantees and special guarantees||22 397||18 426||22 %|
|Export credits||5 043||4 782||5 %|
|1 Jan–30 Jun 2017||1 Jan–30 Jun 2016||Change %|
|Net interest income and net fee and commission income, MEUR||90||93||-4 %|
|Operating expenses, MEUR||23||25||-8 %|
|Operating profit, MEUR||60||-7,4||913 %|
|Profit for the period, MEUR||57||-6,9||929 %|
|30 Jun 2017||31 Dec 2016||Change %|
|Balance sheet total, MEUR||9 986||9 498||5 %|
|Equity, MEUR||1 264||1 207||5 %|
|-of which non-restricted reserves, MEUR||1 012||955||6 %|
|30 Jun 2017||31 Dec 2016||Change %-point|
|Equity ratio, %||12,7 %||12,7 %||0,0|
|Capital adequacy, Tier 2 , domestic operations, %||23,1 %||22,5 %||0,6|
|Cost-income ratio, %||25,4 %||27,0 %||-1,6|
The Group’s profit for January–June 2017 was EUR 57 million, as against a loss of EUR 7 million during the corresponding period the year before.
The main reasons for the improvement of financial performance from the previous year were the smaller losses from export credit guarantee operations and the smaller provisions for losses recorded by the parent company, Finnvera plc. In January–June, export credit guarantee losses and provisions for losses totalled only EUR 2 million, whereas the losses entered and the provisions made in the reference period amounted to EUR 66 million. In the report period, the Group’s guarantee losses and provisions as well as impairment losses on loans amounted to EUR 9 million (65 million), or EUR 57 million less than during the corresponding period the year before. The entries for impairment losses and provisions for losses are estimates. Their amounts may change even substantially as the volume and accuracy of information increase.
Apart from smaller guarantee losses and provisions, the gains from items carried at fair value contributed to the Group’s improved performance during the period under review. These totalled EUR 3 million (-10 million). The increase in gains from items carried at fair value was mainly attributable to changes in the fair values of derivatives, liabilities and venture capital investments.
In addition, financial performance was improved by the decrease of 8 per cent, or EUR 2 million, in operating expenses. Above all, the lower operating expenses were the result of a decrease in personnel, lease and property expenses.
The profit of the parent company, Finnvera plc, stood at EUR 53 million (-7 million) in the period under review. The profit was broken down by the divisions as follows: Large Corporates accounted for EUR 40 million (-17 million) and SMEs and Midcap for EUR 13 million (10 million). The subsidiaries had an impact of EUR 4 million on the Group’s profit for the period (0.1 million).
|Net interest income||23||27||-3||-12 %||50|
|Fee and commission income and expenses (net)||66||67||-0,3||-1 %||144|
|Gains/losses from items carried at fair value||3||-10||12||127 %||-20|
|Net income from investments||-0,5||0,1||-0,7||-496 %||0|
|Other operating income||0,6||0,2||0,4||202 %||12|
|Administrative expenses||-22||-22||-0,4||-2 %||-44|
|Depreciation and amortization||-0,8||-0,7||0,2||25 %||-2|
|Other operating expenses||-1,0||-2,6||-1,6||-61 %||-4|
|Net impairment loss on financial assets||-9||-65||-57||-87 %||-66|
|Impairment loss on other financial assets||0||0||0||0 %||-2|
|Operating profit||60||-7,4||67||913 %||69|
|Profit for the period||57||-6,9||64||929 %||70|
Outlook for financing
It is expected that the demand for export credit guarantees and export credits provided by Finnvera will continue to be strong. Total volumes will be largely dependent on individual major projects, especially in shipbuilding and telecommunications. Large corporations’ trade negotiations requiring long-term financing often take a long time, and we do not foresee any significant changes in the demand forecast previously.
More often than before, demand focuses on Western industrialised countries, which indicates the importance of long-term financing in the export of capital goods. Ships, telecommunications and the forest industry are still expected to account for the bulk of demand associated with large corporations’ exports. Among Finnvera’s major country exposures, Russia has shown signs of modest economic growth. It is also believed that demand for export credit guarantees will pick up when compared against previous years. Despite the problems in the Brazilian economy and administration, demand for guarantees is expected to continue and focus widely on different industries. New demand is also visible in the Middle East region.
Driven by Finland’s good economic growth, the demand for and granting of Finnvera’s SME financing are expected to pick up speed towards the end of the year. In the first half of the year, an increasingly large percentage of the financing was granted to growth enterprises. Launched in 2016, the volume of loans guaranteed for banks by the European Investment Fund (EIF) increased, as did Finnvera’s partial guarantees. During the first six months of 2017, the volume of partial guarantees tripled, to about EUR 24 million, when compared to late 2016. This predicts that demand will continue to be strong.
The campaign to accelerate transfers of ownership continued in the first half of 2017. The number of transfers of ownership financed during the first six months was record high when compared to previous years. The demand for financing for transfers of ownership is also expected to continue at a good level for the second half of the year.
With respect to financial markets, it is likely that the trend in demand for both export financing and domestic SME financing will remain at the present level for the second half of 2017 as well.
CEO Pauli Heikkilä:
“Judging by the demand for Finnvera’s export credit guarantees and financing, it can be assumed that Finnish exports are reviving in other sectors as well.The barometer surveys published last spring also forecast rising investments and greater demand for financing in Finland, but this has not yet been seen as definite growth in the demand for Finnvera’s domestic SME financing. We assume the explanation to be that the Finnish banking sector operates well and can respond to the demand for financing on market terms. The economic outlook is good, and companies seeking financing are economically in a better shape than before, which may reduce the risk-sharing role sought from Finnvera. In addition, there is a new option: a guarantee granted by the European Fund for Strategic Investments, which banks can use as an alternative to Finnvera’s guarantees.
The use of Finnvera’s authorisations means at the same time that the State’s total exposure associated with export financing has risen rapidly. However, it is worth noting that the increase in authorisations is associated with export deliveries taking place in the future. The growth of Finnvera’s real commitments based on current disbursements is clearly more moderate. Finnvera manages risks through careful analysis when granting credits and by constantly monitoring the exposure situation. According to the international assessment report commissioned by the Ministry of Economic Affairs and Employment and published in March 2017, the export financing system implemented by Finnvera in Finland is of a high standard, and risk management is on a par with the best international practices.
Financially, Finnvera’s first six months of 2017 were strong. On the whole, our objective continues to be that Finnvera’s activities remain self-sustainable in the long term and that our activities are funded by proceeds from guarantee activities. Our statutory task is to bear credit risks that arise, for instance, from export transactions. The realisation of individual risks is impossible to predict in every respect.”
Pauli Heikkilä, Chief Executive Officer, tel. +358 29 460 2400
Ulla Hagman, Senior Vice President, CFO, tel. +358 29 460 2458
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The interim report is available in Finnish and English at www.finnvera.fi/eng/Finnvera/Publications/Annual-Reports-and-Interim-Reports.
Finnvera provides financing for the start, growth and internationalisation of enterprises and guarantees against risks arising from exports. Finnvera strengthens the operating potential and competitiveness of Finnish enterprises by offering loans, guarantees and other services associated with the financing of exports. The risks included in financing are shared between Finnvera and other providers of financing. Finnvera is a specialised financing company owned by the State of Finland and it is the official Export Credit Agency (ECA) of Finland. https://www.finnvera.fi/eng
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