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)
- Result -58 MEUR (38) – Due to the increase in the credit loss risk of export credit guarantee exposure in Russia, loss provisions increased by 210 MEUR – there were no grounds for reversing loss provisions made in 2020.
- Result by segment: result of the parent company Finnvera plc's SME and midcap business stood at 9 MEUR (6) and that of Large Corporates business at -77 MEUR (17); the subsidiaries had an impact of 10 MEUR (15) on the Group’s result.
- The separate result for export credit guarantee and special guarantee operations was MEUR -79 (18).
- Balance sheet total EUR 12.1 bn (12.2) – change -1%.
- Contingent liabilities stood at EUR 15.8 bn (15.9), decreasing by 1%
- The total exposure of the parent company Finnvera plc decreased by 1 per cent to EUR 25.3 bn (25.6).
- Non-restricted equity and the State Guarantee Fund, that is, the buffer reserves in total, decreased to EUR 1.2 bn (1.4) – change -11%.
- The expected credit losses based on the balance sheet items increased from the end of the previous year to EUR 1.6 bn (1.4) – change 15%
- Equity ratio decreased by 0.3 pp to 6.8% (7.1%).
- The expense-income ratio improved by 2.9 pp to 17.6% (20.5%).
- The NPS index (net promoter score, NPS) measuring customer satisfaction was 80 (68); the average was increased by improvement in the NPS scores for Locally operating small companies and Large Corporates.
| Finnvera Group, Q1/2022 | |
| Result Q1/2022 -58 MEUR (Q1/2021: 38) | Balance sheet total 31 Mar 2022 EUR 12.1 bn (31 Dec 2021: 12.2) change -1% |
| Total exposure 31 Mar 2022, the parent company’s domestic, export credit guarantee and special guarantee operations EUR 25.3 bn (31 Dec 2021: 25.6) change -1% | Non-restricted equity and The State Guarantee Fund after Q1/2022 result 31 Mar 2022 EUR 1.2 bn (31 Dec 2021: 1.4) change -11% |
| Expense-income ratio Q1/2022 17.6% (Q1/2021: 20.5) change -2.9 pp | Equity ratio 31 Mar 2022 6.8 % (31 Dec 2021: 7.1) change -0.3 pp |
| NPS index (net promoter score) Q1/2022 80 (Q1/2021: 68) change 12 points | Expected credit losses based on the balance sheet items 31 Mar 2022 EUR 1.6 bn (31 Dec 2021: 1.4) change 15% |
CEO Pauli Heikkilä:
“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
Q1/2022 (vs. Q1/2021)
- Domestic loans and guarantees granted: 247 MEUR (442), change -44%
- However, financing was 38% higher than Q1/2019 before the coronavirus pandemic.
- Export credit guarantees and special guarantees granted, incl. SME and midcap export guarantees: EUR 1.0 bn (1.1), change -6%
- Export credits granted: EUR 120 MEUR (324), change -63%
- 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 March 2022 (vs. 31 December 2021)
- Exposure, domestic loans and guarantees: EUR 2.9 bn (3.0), change -2%
- Exposure, export credit guarantees and special guarantees, incl. SME and midcap export guarantees: EUR 22.4 bn (22.6), change -1%
- Drawn exposure: EUR 12.9 bn (12.1), change 6%, of which Large Corporates’ cruise shipping exposure in total EUR 5.7 bn (5.4)
- Undrawn exposure EUR 7.4 bn (7.4) and binding offers EUR 2.1 bn (3.1), in total EUR 9.5 bn (10.5), change -10%, of which Large Corporates’ cruise shipping exposure in total EUR 6.5 bn (6.4).
- Exposure, export credits drawn: EUR 7.7 bn (7.9), change -3%.
| Finnvera Group Financial performance | Q1/2022 MEUR | Q1/2021 MEUR | Change MEUR | Change % | 2021 MEUR |
| Net interest income | 17 | 15 | 3 | 18% | 55 |
| Net fee and commission income | 57 | 39 | 18 | 46% | 167 |
| Gains and losses from financial instruments carried at fair value through P&L and foreign exchange gains and losses | 1 | 2 | -1 | -35% | 2 |
| Other operating income | 94 | 0 | 94 | - | 4 |
| Operational expenses | -12 | -11 | 1 | 6% | -46 |
| Other operating expenses and depreciations | -2 | -3 | -2 | -54% | -8 |
| Realised credit losses and change in expected credit losses, net | -211 | 0 | 211 | - | -11 |
| Operating profit/loss | -55 | 42 | -97 | - | 164 |
| Profit/loss for the period | -58 | 38 | -96 | - | 153 |
Financial performance
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.
Risk position of financing
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.
Outlook for 2022
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.
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 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)
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
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