May 12, 2022 04:00 ET | Source: Finnvera Finnvera

Finnvera Group, Stock Exchange Release 12 May 2022

Interim Management Statement 1 January – 31 March 2022

Russia's invasion of Ukraine has significant impact – Group result in January–March showed a loss of EUR 58 million

Finnvera Group, summary Q1/2022 (vs. Q1/2021 or 31 Dec 2021)

“The positive trend in the growth, internationalisation and investments of companies which began in 2021 continued at the beginning of 2022. Of the sectors of business, demand was the strongest in industry. Russia's invasion of Ukraine had a negative impact on investments. In the longer term, the consequences of the attack and the subsequent sanctions can be remedied, but in the short term, the impacts on both the Finnish and global economies will be significant. Due to the increased uncertainty, the demand for financing for investments may be lower than expected in domestic financing and the demand for working capital financing will increase.

With regard to export financing, especially in the pulp and paper and telecommunications sector, the development has continued positively. The cruise shipping shows signs of recovery from the consequences of the coronavirus pandemic, but there are no grounds for reversing the extensive loss provisions made in the first year of coronavirus 2020.

The credit loss risk of Finnvera Group's export credit guarantee exposure in Russia has increased, due to which we issued a negative profit warning on 11 March 2022 after the loss provisions had increased by EUR 250 million. As a result of the arrangements made due to the war and sanctions, Finnvera's exposure in Russia decreased to EUR 709 million by the end of March, of which loss provisions amounting to EUR 210 million were recognised to the period under review. Due to the increase in loss provisions, the Group's profit for January–March showed a loss of EUR 58 million.

Within its financing authorisations, Finnvera is capable of meeting the financing needs of companies. Finnvera's ability to finance Large Corporates within the framework of the European Investment Bank's EGF guarantee programme will continue until the end of June 2022. In addition, Finnvera has been approved as an implementing partner for InvestEU financing, and the aim is to expand companies' financing opportunities also through this cooperation.”

Finnvera Group, financing granted and exposure

Finnvera Group's result for January‒March 2022 showed a loss of EUR 58 million, whereas the result for the corresponding period last year showed a profit of EUR 38 million. The negative result was due to an increase of EUR 210 million in the loss provisions of export credit guarantee exposure in Russia. No major final losses were realised in January‒March. No significant recovery in cruise shipping or substantial reduction in the credit risk of guarantee commitments were assessed to have taken place during the beginning of the year, so there were also no grounds for reversing the extensive loss provisions of EUR 1,222 million made in 2020.

During March, the total exposure in Russia decreased from EUR 977 million to EUR 709 million and drawn exposure increased to EUR 546 million as a result of prepayments. Due to the decrease in exposure, the amount of loss provisions in early March were lower than expected.

Impacted by the increase in loss provisions, separate result for export credit guarantee and special guarantee operations was EUR -172 million, of which EUR 79 million is covered by the reserve for export credit guarantee and special guarantee operations accumulated based on the profits made in 2021 and EUR 93 million as a fund payment from the State Guarantee Fund. The fund payment was recognised in the financial statements as a receivable from the State Guarantee Fund, and it has not yet been applied for from the Fund. 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.

The net interest income and net fee and commission income improved in January‒March compared to the previous year and also compared to the years before the coronavirus pandemic. The net interest income was EUR 3 million higher than in the previous year, especially as a result of gains made by the interest and investment positions. Correspondingly, net fee and commission income increased by EUR 18 million from the previous year, which was due in particular to the recognition of fee and commission income to the period under review as a result of prepayments of exposure.

Finnvera’s domestic and export financing reserves for covering potential future losses taking into account the result of the period amounted to a total of EUR 1,062 million (1,224) at the end of March. The reserves consisted of non-restricted equity for domestic financing of EUR 408 million (399), non-restricted equity for export credit and special guarantee financing as well as assets in the State Guarantee Fund for covering a loss-making result of EUR 654 million (825) in total.

At the end of March, the exposure for drawn domestic loans and guarantees amounted to EUR 2,633 million and it decreased by EUR 16 million from the turn of the year 2021. EUR 383 million of this exposure was related to large corporates employing more than 249 persons.

At the beginning of the year, the distribution of the domestic financing credit portfolio met the targets. Risks pertaining to individual clients and the amounts of non-performing credits and arrears remained at a reasonable level. Expected loss (EL) for exposure remained almost unchanged during the first months of the year and was 3.54 per cent of total exposure at the end of March. The distribution of exposure by risk category also remained virtually unchanged.

At the end of the first quarter, the total exposure arising from export credit guarantees and special guarantees was EUR 22,378 million (22,637). Approximately 75 per cent of the outstanding export credit guarantees and special guarantees totalling EUR 20,285 million (19,500) and binding offers totalling EUR 2,087 million (3,108) were associated with transactions in EU Member States and OECD countries. Altogether, 27 per cent of the exposure was in risk category BBB-, which reflects investment grade, or in better risk categories.

While significant final export credit guarantee losses were not realised during Q1, the calculated expected loss (ECL) remains significantly high, as it did at the end of 2021. The increased level of loss provisions was mainly due to the deterioration of the economic outlook in cruise shipping caused by the coronavirus pandemic and the materially weakened economic outlook in Russia in the first quarter of the year, which decreased the risk ratings of individual risk subjects.

The recovery of cruise shipping from the coronavirus pandemic as well as the war in Ukraine and the weakened economic outlook in Russia cause significant uncertainty regarding Finnvera Group's profit development in 2022. Finnvera issued a negative profit warning on 11 March 2022, stating that, according to assessment, as yet no grounds exist for decreasing the loss provisions previously made due to the coronavirus pandemic and, because of the increase in the export credit guarantee exposure in Russia, Finnvera Group's result for 2022 may show a loss. Changes in the amount of loss provisions and any final losses determine whether the result will show a loss or profit for 2022. However, under the prevailing circumstances, it is very difficult to anticipate these changes and the realised losses.

This stock exchange release is a summary of Finnvera Group's interim management statement of January‒March 2022 and contains the relevant information from the statement. The entire interim management statement is attached to this release as a PDF file and is available on the company's website at www.finnvera.fi.

Interim Management Statement 1 January – 31 March 2022 (PDF)

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