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Finnvera Group’s Report of the Board of Directors and Financial Statements 2020

Finnvera
·10-min read

Finnvera Group, Stock Exchange Release 23 February 2021

Finnvera Group’s Report of the Board of Directors and Financial Statements 2020

Enterprises’ availability of financing was secured in the coronavirus crisis – Finnvera’s financial performance showed considerable loss due to credit loss provisions

CEO Pauli Heikkilä’s comments:

"The coronavirus pandemic made Finnvera focus on two tasks in 2020: securing the availability of lending to viable enterprises in Finland and ensuring that conditions for export financing could be maintained in the crisis.

The management of the crisis demonstrated the importance of functioning cooperation models. Finnvera’s owner, the Ministry of Economic Affairs and Employment, the Finnish Government and Parliament acted very swiftly to change laws to enable us to respond to the crisis. Finnvera’s domestic loan and guarantee authorisation was raised to EUR 12 billion and the credit and guarantee loss compensation payable to Finnvera was increased to 80 per cent. We responded to enterprises’ increased financing demand by making rapid changes in our products, service processes and pricing.

According to our estimate, the operating models we created very quickly with banks and other cooperation partners enabled a major portion of enterprises in need of financing to also receive financing. We granted a record amount of domestic financing, a total of EUR 1.7 billion, which is over 70 per cent more than the previous year. Exposure in domestic financing increased to EUR 2.9 billion.

EUR 2.9 billion was granted in export credit guarantees and special guarantees primarily to large corporates for export trade and EUR 1.1 billion in export credits. Export companies’ previous orders and the related financing decisions extend far beyond 2020, but decisions concerning new extensive export projects decreased. The exposure related to export credit guarantees and special guarantees in the Large Corporates business was EUR 22.0 billion at the end of the year.

The cruise shipping sector was hit particularly hard by the coronavirus pandemic. In accordance with the IFRS 9 standard, in 2020 Finnvera had to make extensive credit loss provisions in the export credit guarantee and special guarantee operations, totalling EUR 1.2 billion as a result of the weakened risk ratings and macroeconomic forecasts. The Finnvera Group’s profit for 2020 showed a loss of EUR 748 million after the State Guarantee Fund payment of EUR 349 million.

Finnvera’s goal is to be self-sustainable over the long term, and its operations were profitable during the company’s 21 years of operation, until 2019. During this period, the company increased its loss reserves for potential future losses. The reserves were sufficient for covering the considerable loss provisions made in the export credit guarantee and special guarantee operations in 2020, but their amount decreased significantly. The Group’s non-restricted equity and the State Guarantee Fund’s assets are included in the reserves. The increase in the export financing exposure and financing authorisations in recent years have increased the importance of risk management and protection against risks. Operations with a long-term focus, risk management and controlled risk-taking are part of Finnvera’s basic task and enable us to maintain the operating conditions of export financing throughout the coronavirus crisis."

Finnvera Group, year 2020 (vs. 2019)

Result for the period
-748 MEUR
(94), change -893%

Balance sheet total
EUR 12.7 bn
(12.7), change 0%

Total exposure,
the parent company
incl. binding financing offers and agreements
EUR 25.0 bn
(27.5), change -9%

Non-restricted equity
and The State Guarantee Fund
after result for the period
EUR 0.8 bn
(1.9), change -57%

Expense-income ratio
26.4%
(25.4), change 0.9 pp

Equity ratio
5.7%
(11.6), change -5.8 pp

NPS-index
(net promoter score)
56
(64), change -8 points

Expected
credit losses
EUR 1.4 bn
(0.2), change 471

Finnvera Group, business operations and the financial performance
1– 12/2020 (1–12/2019)

  • Domestic loans and guarantees granted: EUR 1,425 million (EUR 794 million), change 80%

  • Export credit guarantees and special guarantees granted: EUR 3,214 million (EUR 5,442 million), change -41%

  • Export credits granted: EUR 1,089 million (EUR 2,491 million), change -56%

    • 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

31.12.2020 (31.12.2019)

  • Exposure, domestic loans drawn and guarantees: EUR 2,430 million (EUR 1,928 million), change 26%

  • Exposure, export credit guarantees and special guarantees, including SME and midcap export credit guarantees and export guarantees: EUR 22,408 million (EUR 25,489 million), change -12%

    • Drawn exposure EUR 11,762 million (EUR 11,443 million), change 3%. Of this, the total exposure of the cruise shipping and shipyard sector is EUR 4,427 million (EUR 3,939 million)

    • Undrawn exposure EUR 7,749 million (EUR 9,486 million) and binding offers EUR 2,896 million (EUR 4,560 million), total change -24%. Of this, the total exposure of the cruise shipping and shipyard sector is EUR 7,089 million (EUR 10,596 million)

  • Exposure, export credits drawn: EUR 7,561 million (EUR 7,299 million), change 4%

As a result of the considerable loss provisions in the export credit guarantee and special guarantee operations, made due to the coronavirus pandemic, the Finnvera Group’s profit for 2020 showed a loss of EUR 748 million after the State Guarantee Fund payment. The result showed a profit of EUR 94 million in the previous year. In 2020, the credit loss provisions associated with the export credit guarantee and special guarantee operations grew by EUR 1,166 million. On the other hand, the loss provisions of deposits in banks and investments as well as domestic loans and guarantees decreased by a total of EUR 29 million, which was mostly due to raising the State’s credit loss and guarantee loss compensation from 50 per cent to 80 per cent.

The result of 2020 showing a loss was primarily covered from the assets in the reserve for export credit guarantee and special guarantee operations in Finnvera’s balance sheet and thereafter, from the State Guarantee Fund. The fund payment of EUR 349 million from the State Guarantee Fund is recognised in Finnvera’s other operating income. After the result for the period, the parent company Finnvera’s domestic and export financing reserves to cover potential future losses amounted to EUR 692 million. The reserves consists of the following: non-restricted equity in domestic financing EUR 351 million as well as EUR 342 million remaining in the State Guarantee Fund after the fund payment. The State Guarantee Fund is a fund not included in the state budget, the funds of which have been accumulated in the activities of Finnvera’s predecessor organisations. 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.

In 2020, the Group’s net interest income grew by 23 per cent year on year and net fee and commission income grew by 2 per cent. Changes in the value of items recognised at fair value through profit or loss and foreign exchange gains and losses were EUR 2 million positive, whereas in the previous year, the corresponding change was EUR 10 million. The operating expenses were 5 per cent higher and depreciation and other operating expenses were 12 per cent higher compared to the previous year, which was the result of the increase in the costs of collection and securing receivables, the temporary staff recruited for the processing of the increased number of domestic financing applications, as well as the increase in IT expenses following the system changes made due to the coronavirus pandemic and the ongoing financing system renewal project.

Finnvera Group
Financial performance

H2/2020
MEUR

H1/2020
MEUR

Change
%

H2/2019
MEUR

2020
MEUR

2019
MEUR

Change
%

Net interest income

27

24

14%

22

51

41

23%

Net fee and commission income

75

68

11%

72

143

141

2%

Gains and losses from financial instruments carried at fair
value through P&L and foreign exchange gains and losses

4

-2

276%

-6

2

10

-84%

Other operating income

349

0

-

0

349

0

-

Operational expenses

-22

-22

-1%

-19

-44

-42

5%

Other operating expenses and depreciations

-4

-4

0%

-10

-8

-7

12%

Realised credit losses and change in expected credit losses, net

-752

-481

56%

-42

-1,233

-43

2,742%

Operating profit/loss

-322

-418

23%

23

-740

100

-838%

Profit/loss for the period

-325

-423

23%

22

-748

94

-893%


Outlook for financing

According to the Bank of Finland’s forecast, GDP will grow by 2.2 to 2.5 per cent in 2021–2022. According to the forecast by the Ministry of Finance, the Finnish economy will grow by 2.5 per cent in 2021. The second wave of the coronavirus pandemic has slowed down the pace of economic recovery.

Finnvera is prepared to secure the availability of lending to viable enterprises in all stages of the crisis. Finnvera will continue the bank financing guarantee programme and supplement the financial market also with own loans. Financing for transfers of ownership is expected to grow and preparations for financing of new growth in diverse manner have been made. This refers to the strengthening of enterprises’ eligibility for financing with Finnvera’s junior loan, for instance. The level of domestic financing demand in 2021 is expected to be higher than during normal years but to remain lower than in the exceptional year 2020.

The existing order book of large corporates has maintained the demand for Finnvera’s export financing. The number of new large export projects has decreased, which will impact future volumes of export credit guarantees and export credits. As in previous years, the overall demand is affected by the realisation of individual major projects. The impacts of the pandemic have hit the cruise shipping sector the hardest among Finnvera’s key export financing sectors. The outlook for the sector is strongly affected by when the shipping companies will be able to re-launch their operations. In other large sectors of export trade, we expect an increasing number of buyers to be interested in financing export transactions through credits guaranteed by an export credit agency. The weaker availability of commercial financing typically increases demand for financing provided by export credit agencies.

Finnvera prepares for meeting the working capital financing needs of domestic large corporates and for making new financing solutions available to enterprises in cooperation with the EU Commission and the European Investment Bank. In normal circumstances, the strategic goal is to allocate the majority of financing to enterprises seeking growth and internationalisation as well as to investments, transfers of ownership and exports. During the coronavirus pandemic, the allocation of financing is expanded to help all viable enterprises to overcome the crisis.

The financial performance in 2021 will be materially affected by the course of the coronavirus pandemic and the resolution of the uncertainty caused by the pandemic. Decisive factors are the schedule and extent of the recovery. If the economic development and the business operations of Finnvera’s individual high-risk subjects achieve a sufficient growth path in the current year, improving the risk rating of the risk subjects and reducing Finnvera’s loss provision entries, it is possible that the Finnvera Group’s operations are self-sustainable in 2021. On the other hand, if the economy and the business operations recover more slowly, the Group’s result may show a considerable loss, in the same manner as in 2020.

Further information:

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

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

Finnvera Group’s Report of the Board of Directors and Financial Statements 1 January – 31 December 2020 (PDF)

Distribution:

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

The Annual Report is available in Finnish and English at www.finnvera.fi/financial_reports

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