Finnvera Group’s Half-Year Report 1 January–30 June 2023

Finnvera Group, Stock Exchange Release 17 August 2023

Finnvera Group’s Half-Year Report 1 January–30 June 2023

Finnvera’s domestic and export financing volumes are high – The Group’s result was EUR 148 million

Finnvera Group, summary H1/2023 (vs. H1/2022 or 31 December 2022)

• Result 148 MEUR (-29) – the result was profitable due to the reversal of loss provisions made in the cruise shipping sector in the second quarter.
• Result by segment: result of the parent company Finnvera plc's SME and midcap business stood at 15 MEUR (11) and that of Large Corporates business at 119 MEUR (-65). The impact of Finnvera’s subsidiary, Finnish Export Credit Ltd, on the Group’s result was EUR 14 million (25).
• The parent company Finnvera plc’s result for domestic operations was 13 MEUR (24). The result for the parent company's export credit guarantee and special guarantee operations was 121 MEUR (-79).
• Total exposure of the parent company Finnvera plc increased by 5% to EUR 28.0 billion (26.6).
• Balance sheet total EUR 12.2 bn (12.6) – change -3%.
• Contingent liabilities stood at EUR 18.7 bn (16.6) – increased by 13%.
• Non-restricted equity and the State Guarantee Fund, that is, the buffer reserves for covering potential future losses, totalled EUR 1.6 bn (1.4) – increased by 11%.
• The expected credit losses based on the balance sheet items, standing at EUR 1.4 bn (1.5), reduced by 9%.
• Equity ratio increased by 1.4 percentage points to 8.6% (7.2).
• Expense-income ratio deteriorated by 2.0 percentage points to 20.8% (18.8).
• Net promoter score (NPS) index, measuring customer satisfaction, was 61 (81), or 20 points below the corresponding period in the previous year.
  
  

Finnvera Group, H1/2023
Result H1/2023 148 MEUR H1/2022: -29 MEUR	Balance sheet total 30 Jun 2023 EUR 12.2 bn 31 Dec 2022: EUR 12.6 bn change -3%
Total exposure 30 Jun 2023,  the parent company’s domestic, export credit guarantee and special guarantee operations EUR 28.0 bn 31 Dec 2022: EUR 26.6 bn change 5%	Non-restricted equity and The State Guarantee Fund after H1/2023 result 30 Jun 2023 EUR 1.6 bn 31 Dec 2022: EUR 1.4 bn change 11%
Expense-income ratio H1/2023 20.8% H1/2022: 18.8% change 2.0 pp	Equity ratio 30 Jun 2023 8.6% 31 Dec 2022: 7.2% change 1.4 pp
NPS index (net promoter score) H1/2023 61 H1/2022: 81 change -20 points	Expected credit losses based on the balance sheet items 30 Jun 2023 EUR 1.4 bn 31 Dec 2022: EUR 1.5 bn change -9%

CEO Pauli Heikkilä:

“Uncertainty in the international operating environment, inflation and the rise in interest rates increased caution among companies and financiers during the first half of 2023. The number of bankruptcies and company reorganisations increased from the previous year. On a positive note, the investments in the green transition were growing.

In January–June, Finnvera granted domestic loans and guarantees to companies amounting to EUR 0.8 billion (0.5). In line with the Group strategy, most of the financing was allocated to growth companies, innovative enterprises, export companies and enterprises seeking growth through internationalisation. The figure also included domestic financing granted to large corporates. Finnvera financed, for example, the operations of Meyer Turku Shipyard, partly with a guarantee from the European Investment Bank (EIF). Domestic financing as a whole remained at a higher level than before the coronavirus pandemic.

The amount of export credit guarantees and special guarantees granted in January–June came to EUR 3.5 billion (2.4). Large projects were financed especially in the pulp and paper, telecommunications and mining sectors. The annual volume of export financing is always influenced by the timing of major individual transactions. No new vessel orders were made in cruise shipping, but the business of cruise shipping companies affected by the coronavirus pandemic developed positively. The vessels are in traffic, and the occupancy rates and prices reported by many shipping companies are at least at the pre-pandemic level.

The Finnvera Group’s result for January–June showed a profit of EUR 148 million (-29). The parent company’s SME and midcap business and the Large Corporates business, as well as the subsidiary Finnish Export Credit Ltd all made profit. As the outlook for the cruise shipping industry improved and the sector’s liabilities decreased, in the second quarter we were able to reverse some of the credit loss provisions made in 2020 due to the coronavirus pandemic. This contributed to the positive result of the Large Corporates business and the Group.

Finnvera's exposure in Russia has continued to decrease. When the war in Ukraine began, Finnvera's exposures in Russia amounted to almost one billion euros. At the end of June 2023, the remaining liabilities totalled EUR 320 million.

In accordance with its strategy, Finnvera continued to diversify its financing offering and export promotion by means of financing. In the spring, a legislative amendment enabled granting direct buyer credit financing for export transactions of less than EUR 20 million. The first export credit was granted, and the following projects are under preparation. In June, we introduced new unsecured loan products, the Climate and Environmental Loan, and the Digitalisation and Innovation Loan, enabled by the InvestEU programme. The financing is implemented in cooperation with the EIF. During the first month, the amount of financing granted through these loans totalled EUR 5 million.

After a lengthy negotiation process, an agreement was reached in the OECD Arrangement negotiations resulting in major changes to the international rules on export financing. This will extend the maximum credit periods and give special attention to climate change issues.

We have collaborated with the Ministry of Economic Affairs and Employment to prepare an overhaul of the legislation on Finnvera, which has now been included in the Government Programme. The aim is to simplify the legislation and to improve the competitiveness of export financing in relation to other countries.”

Finnvera Group, financing granted and exposure

H1/2023 (vs. H1/2022)

• Domestic loans and guarantees granted: 763 MEUR (531), change 44%.
• Export credit guarantees and special guarantees granted, incl. SME and midcap export credit guarantees: EUR 3.5 bn (2.4), change 47%.
• Export credits granted: 15 MEUR (149), change -90%.
  • 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.

30 June 2023 (vs. 31 December 2022)

• Exposure, domestic loans and guarantees: EUR 2.9 bn (2.7), change 7%.
• Exposure, export credit guarantees and special guarantees, incl. SME and midcap export credit guarantees: EUR 25.1 bn (23.9), change 5%.
  • Drawn exposure: EUR 13.9 bn (14.1), change -1%, of which Large Corporates’ cruise shipping exposure EUR 6.3 bn (6.6)
  • Undrawn exposure: EUR 6.8 bn (7.9) and binding offers EUR 4.4 bn (1.9), in total EUR 11.2 bn (9.8), change 14%, of which Large Corporates’ cruise shipping exposure in total EUR 6.6 bn (6.1 bn).

• Exposure, export credits drawn: EUR 6.6 bn (7.5), change -11%.

Financial performance

Finnvera Group Financial performance	Q2/2023 MEUR	Q1/2023 MEUR	H1/2023 MEUR	H1/2022 MEUR	Change MEUR	2022 MEUR
Net interest income	23	25	48	31	17	69
Net fee and commission income	46	45	91	107	-17	204
Gains and losses from financial instruments carried at fair value through P&L and foreign exchange gains and losses	-1	-2	-3	9	-12	-6
Other operating income	0	0	0	74	-74	0
Operational expenses	-13	-13	-26	-25	1	-49
Other operating expenses and depreciations	-1	-1	-3	-3	0	-6
Realised credit losses and change in expected credit losses, net	132	-90	42	-217	-258	-148
Operating result	188	-38	150	-23	173	64
Result	186	-39	148	-29	177	55

The Finnvera Group’s result for January–December 2023 was EUR 148 million (-29). The profitable result was affected by the reversal of loss provisions for cruise shipping companies by EUR 150 million in the second quarter of the year. The outlook for cruise shipping companies has continued to improve, and the liabilities have decreased. However, the credit risk still remains high, and the rise in market interest rates has increased the risk for its part. On this basis, the amount of loss provisions made in the sector still remain considerable. Total exposure in Russia has also continued to decrease. During the period under review, the exposure decreased by 24% from EUR 422 million at the end of 2022 to EUR 320 million at the end of June. However, the credit risk of exposure in Russia and the need for loss provisions are not expected to have decreased.

No major individual final losses were realised in the second quarter. During the first quarter of the year, one single major loss was realised due to the liquidation of MV Werften shipyard, but it does not have an impact on result thanks to previously made loss provision reversal. In January–June, the Finnvera Group’s realised credit losses totalled EUR 105 million (16) and the loss provisions decreased by EUR 140 million, while in the corresponding period they increased by EUR 213 million.

During the period under review, the Group’s net interest income totalled EUR 48 million (31) and its net fee and commission income was EUR 91 million (107). The net interest income was EUR 17 million higher compared to the corresponding period in the previous year, which was mainly due to the rise in market interest rates. Correspondingly, the net fee and commission income decreased by EUR 17 million compared to the previous year, which was due to rearrangements made in financing agreements and recognition of guarantee premiums received in advance from early repayments of liabilities.

Taking into account the January–June result, as per 30 June, 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 1,398 million (1,261). The reserves consisted of a reserve for domestic operations of EUR 387 million (375), 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 1,011 million (886). 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. 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 credit risk for the export credits granted by the subsidiary Finnish Export Credit Ltd is covered by the parent company Finnvera plc’s export credit guarantee.

Outlook for financing

This year, demand for domestic financing has been characterised by increased uncertainty in the operating environment, due in particular to the rapid rise in prices and interest rates. As a result, Finnvera's share of SME financing projects has increased slightly in relation to commercial providers of financing. We estimate the granting of domestic financing at the end of the year to remain at the same level as in the previous year. Compared to previous years, the share of financing granted for working capital has increased slightly, while the funding for investments has decreased slightly. Finnvera's funding continues to be mainly targeted for the establishment, growth and internationalisation of business activities.

We will continue to promote our diverse financing offering. The Climate and Environmental Loan, and the Digitalisation and Innovation Loan, utilising the InvestEU programme, have attracted a lot of interest. We estimate that these loans will be granted in growing numbers towards the end of the year as the projects in their planning stages progress. New applications for export credits of less than EUR 20 million are also being processed, and the number of applications has been at the expected level. We estimate the demand for direct export credits to increase steadily as companies' competence and willingness to utilise export financing solutions increase.

With respect to export credit guarantees, it seems that the year 2023 will be very good in terms of euros. In uncertain times, the role of export credit agencies in financing typically grows, when banks are more willing to share the risk than before and companies want to diversify their sources of financing. As in previous years, the realisation and timing of individual major projects will influence the overall demand. We estimate that the demand for export financing will mainly focus on the telecommunications and pulp and paper sectors.

Business outlook for 2023

The business outlook for cruise shipping companies has continued to improve during the first half of the year, and Finnvera Group’s liabilities in the cruise shipping sector and the exposure in Russia have also decreased. However, the credit loss risk of the Group’s liabilities remains high. In particular, the risks are associated with cruise shipping and exposures in Russia, resulting in uncertainty about the Finnvera Group’s financial performance in 2023. In line with the Q1/2023 report the Group’s result for 2023 is largely determined by realised final credit losses and changes in the amount of loss provisions.

Further information:

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

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

This stock exchange release is a summary of Finnvera Group’s Half-Year Report of January–June 2023 and contains the relevant information from the report. The Half-Year Report in its entirety is attached to this bulletin as a PDF file and is available on the company’s website in Finnish and English at www.finnvera.fi/financial_reports.

Half-Year Report 1 January–30 June 2023 (PDF)

Distribution:

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