Interim Management Statement 1 January – 30 September 2023

Finnvera Group, Stock Exchange Release 9 November 2023

Interim Management Statement 1 January – 30 September 2023

The volumes of Finnvera’s financing remain high, risk level rising in domestic financing – Group’s result EUR 172 million

Finnvera Group, summary 1–9/2023 (vs. 1–9/2022 or 31 December 2022)

• Result 172 MEUR (-19) – In the second quarter, loss provisions for cruise shipping were reversed by 150 MEUR, which contributed to the positive result of the period under review. In the third quarter, the loss provisions for export credit guarantee and special guarantee operations were kept unchanged.
• Result by segment: result of the parent company Finnvera plc’s SME and midcap business stood at 34 MEUR (16) and that of Large Corporates business at 114 MEUR (-64). The impact of Finnvera’s subsidiary, Finnish Export Credit Ltd, on the Group’s result was 24 MEUR (29).
• The parent company Finnvera plc’s result for domestic operations was 29 MEUR (38). The result for the parent company’s export credit guarantee and special guarantee operations was 119 MEUR (-79).
• Total exposure of the parent company Finnvera plc decreased by 1% to EUR 26.3 bn (26.6).
• Balance sheet total decreased by 1% to EUR 12.6 bn (12.6).
• Contingent liabilities stood at EUR 17.1 bn (16.6) – increased by 3%.
• 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 12%.
• The expected credit losses based on the balance sheet items, standing at EUR 1.4 bn (1.5) – reduced by 7%.
• Equity ratio improved by 1.4 percentage points to 8.6% (7.2%).
• Expense-income ratio improved by 0.6 percentage points to 18.5% (19.1%).
• Net promoter score (NPS) index, measuring customer satisfaction, was 64 (73), or 9 points below the corresponding period in the previous year.

Finnvera Group, 1–9/2023
Result 1–9/2023 172 MEUR (1–9/2022: -19)	Balance sheet total  30 Sep 2023 EUR 12.6 bn (31 Dec 2022: EUR 12.6 bn) change -1%
Total exposure 30 Sep 2023, the parent company’s domestic, export credit guarantee and special guarantee operations EUR 26.3 bn (31 Dec 2022: EUR 26.6 bn)  change -1%	Non-restricted equity and The State Guarantee Fund after 1–9/2023 result  30 Sep 2023 EUR 1.6 bn (31 Dec 2022: EUR 1.4 bn) change 12%
Expense-income ratio 1–9/2023 18.5% (1–9/2022: 19.1%) change -0.6 pp	Equity ratio  30 Sep 2023 8.6% (31 Dec 2022: 7.2%) change 1.4 pp
NPS index (net promoter score) 1–9/2023 64 (1–9/2022: 73) change -9 points	Expected credit losses based on the balance sheet items  30 Sep 2023 EUR 1.4 bn (31 Dec 2022: EUR 1.5 bn) change -7%

CEO Pauli Heikkilä:

“The uncertain economic situation and Finland’s fall into recession manifested themselves particularly as an increase in the risk indicators for domestic financing. The risk ratings of companies have deteriorated, payment difficulties have increased, and the number of corporate corporate debt restructurings and bankruptcies has increased in the third quarter of the year. As regards Finnvera, the change is not yet dramatic in terms of euros, but the signal is worrying for the Finnish economy.

In January−September, Finnvera granted more domestic loans and guarantees than over the same period in the year before, totalling EUR 0.9 billion (0.7). 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. However, it is possible that future-oriented activities and demand for financing will decrease, as customer companies in the manufacturing industry in particular are dismantling the stocks they accumulated during the component shortage following the COVID-19 pandemic and thus postpone purchases. The number of small start-ups among Finnvera’s clients has decreased significantly.

In January−September, Finnvera granted export credit guarantees and special guarantees amounting to EUR 3.8 billion (3.6). From the perspective of export financing exposure, the outlook for the largest sector, cruise shipping, has improved: the customer volumes and profitability of the largest cruise shipping companies have returned close to the 2019 level. In terms of Finnvera’s export financing exposure, the telecommunications sector has become the second largest sector, with an 18 per cent share.

The Finnvera Group’s result for January–September was EUR 172 million (-19). The parent company’s SME and midcap business and the Large Corporates business, as well as the subsidiary Finnish Export Credit Ltd all made a profitable result. In the third quarter, we kept the loss provisions for export credit guarantee and special guarantee operations unchanged.

At the end of September 2023, Finnvera’s exposure in Russia stood at EUR 311 million. In the second quarter, we reversed some of the credit loss provisions made due to the COVID-19 pandemic in 2020, most of which were allocated for cruise shipping companies.

In August, Finnvera’s Board of Directors approved the company’s updated strategy, which specified Finnvera’s future climate targets along with its basic tasks, export promotion and diversification of domestic financing. During the past year, increasing investments in clean transition have acted as a positive driver of the economy. There has been a lot of demand for climate and environmental loans as well as digitalisation and innovation loans that we introduced in June. By the end of September, we had granted EUR 15 million of these unsecured loans enabled by the InvestEU programme in cooperation with the European Investment Fund.

The preparation of the overhaul of the legislation on Finnvera included in the Finnish Government Programme has begun under the direction of the Ministry of Economic Affairs and Employment, in cooperation with the Ministry of Finance. The aim is to simplify the legislation and improve the competitiveness of export financing in relation to other countries.

Exports are of great importance to the Finnish economy, and export credit guarantees secure exports in times of global uncertainty in particular. The impacts of the crisis erupted in the Middle East on the world economy will not be seen until later.”

Finnvera Group

Financing granted 1–9/2023 (vs. 1–9/2022)

• Domestic loans and guarantees granted: 920 MEUR (664), change 39%.
• Export credit guarantees and special guarantees granted, incl. SME and midcap export credit guarantees: EUR 3.8 bn (3.6), change 3%.
• Export credits granted: 33 MEUR (891), change -96%.
  • 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.

Exposure 30 September 2023 (vs. 31 December 2022)

• Exposure, domestic loans and guarantees: EUR 2.8 bn (2.7), change 3%.
• Exposure, export credit guarantees and special guarantees, incl. SME and midcap export credit guarantees: EUR 23.6 bn (23.9), change -2%.
  • Drawn exposure: EUR 13.8 bn (14.1), change -3%, of which Large Corporates’ cruise shipping exposure EUR 6.5 bn (6.6)
  • Undrawn exposure: EUR 6.6 bn (7.9) and binding offers EUR 3.2 bn (1.9), in total EUR 9.8 bn (9.8), change 0%, of which Large Corporates’ cruise shipping exposure in total EUR 5.3 bn (6.1 bn).
• Exposure, export credits drawn: EUR 6.5 bn (7.5), change -14%.

Financial performance

Finnvera Group Financial performance	Q3/2023 MEUR	Q3/2022 MEUR	1–9/2023 MEUR	1–9/2022 MEUR	Change MEUR	Change %	2022 MEUR
Net interest income	34	19	82	50	32	64%	69
Net fee and commission income	46	47	137	155	-18	-11%	204
Gains and losses from financial instruments carried at fair value through P&L and foreign exchange gains and losses	-2	-6	-4	3	-7	-	-6
Other operating income	0	-32	0	42	-41	-100%	0
Operational expenses	-10	-10	-36	-35	1	2%	-49
Other operating expenses and depreciations	-1	-2	-4	-5	-1	-14%	-6
Realised credit losses and change in expected credit losses, net	-41	-5	1	-222	-223	-	-148
Operating result	27	11	177	-12	189	-	64
Result	24	10	172	-19	191	-	55

The Finnvera Group’s result for January–September 2023 was EUR 172 million (-19). Of the Group’s result, EUR 24 million was generated in July–September and EUR 148 million in January–June. In the second quarter, loss provisions for cruise shipping were reversed by EUR 150 million, which contributed also to the positive result of the January–September period. In the third quarter, the loss provisions for export credit guarantee and special guarantee operations were kept unchanged. The business outlook of cruise shipping companies has improved in 2023, and the sector's liabilities have decreased, but the credit risk remains high. The rise in market interest rates has contributed to the risk, and the loss provisions for the sector as a whole remain significant. At the end of September, the exposure in Russia stood at EUR 311 million (422). The credit risk of exposure in Russia and the need for loss provisions are not expected to have changed.

During the period under review, the Finnvera Group’s realised credit losses amounted to EUR 106 million (6) in total. In the period under review, loss provisions decreased by EUR 107 million, whereas in the comparison period they increased by EUR 216 million. The realised credit losses and the change in loss provisions net amounted EUR 1 million positive, whereas the corresponding item in the comparison period amounted EUR 222 million negative.

During the period under review, the Group’s net interest income totalled EUR 82 million (50) and its net fee and commission income was EUR 137 million (155). In particular, the increase in market interest rates improved the net interest income from the corresponding period in the year before. Net fee and commission income was lower than in the previous year, which was due to the reorganisation of financing agreements concluded during the comparison period and the recognised premiums from early repayments of liabilities.

After the result of the period under review, as per 30 September, the parent company’s reserves for domestic operations and export credit guarantee and special guarantee operations for covering potential future losses totalled to EUR 1,415 million (1,261). The reserves covering also the credit risk for export credits consisted of a reserve for domestic operations of EUR 404 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.

At the end of September, the non-restricted equity of the subsidiary, Finnish Export Credit Ltd, was EUR 195 million (171).

Risk position of financing

At the end of September, the exposure for drawn domestic loans and guarantees amounted to EUR 2,544 million (2,335), increasing by EUR 209 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 to a certain degree, but so far significant credit losses have been avoided. Risks pertaining to individual clients have remained at a reasonable level, although a slight increase in the amount of arrears in euros can be detected compared to the turn of the year. Of the exposures, approximately 70 per cent fall within the intermediate credit risk categories B- – BB+.

At the end of September, the total exposure arising from export credit guarantees and special guarantees was EUR 23,563 million (23,928). Approximately 75 per cent of the outstanding export credit guarantees and special guarantees totalling EUR 20,405 million (22,031) and binding offers totalling EUR 3,158 million (1,897) were associated with transactions in EU Member States and OECD countries. Altogether, 33 per cent of the exposure was in risk category BBB-, which reflects investment grade, or in better risk categories.

There were no significant changes in the risk distribution of export credit guarantees compared to the end of 2022. The biggest risks were still related to the cruise shipping sector and exposures in Russia.

Outlook for 2023

The business outlook for cruise shipping companies has improved in 2023, and Finnvera Group's exposure in the cruise shipping sector and in Russia have also decreased. However, the credit loss risk of the exposure remains high. In particular, the risks are associated with cruise shipping companies and exposures in Russia, resulting in uncertainty about the Finnvera Group's profit development in 2023. In line with the H1/2023 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 interim management report of January−September 2023 and contains the relevant information from the report. The interim management 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.

Interim Management Statement 1 January–30 September 2023 (PDF)

Distribution:

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

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