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Country Commercial Guides
FY 2000: Finland
CHAPTER VIII: TRADE AND PROJECT FINANCING
The Finnish Banking System
In the last few years, the Finnish banking system has undergone rapid change. The initial impetus for this process was the step-by-step deregulation of financial markets and capital movements in the 1980s as part of the overall financial integration in Europe. Then the recession in the early 1990s and a severe banking and financial sector crisis, aggravated by bad lending practices in the late 1980s, touched off a consolidation of excess banking capacity. Tighter competition ensued from Finland's EU entry, accelerating cost cutting in the sector. Financial consolidation has been accomplished by reducing personnel, closing branch offices and introducing modern banking technology.
The Finnish banking system is dominated by three major groups of deposit banks: MeritaNordbanken, the result of the merger between Merita and Swedish Nordbanken, as well as Okobank (the Cooperative Bank Group) and the 100% government-owned Leonia (former Postipankki) with a total of 1242 offices. There are two big commercial banks with national branch networks and five smaller ones. The commercial banks have a total of 10 foreign branches, subsidiaries and associate banks and 16 representative offices abroad. There are 40 savings banks and 294 cooperative banks with their own extensive branch networks. In addition to domestic banks, six foreign banks have branches in Finland: Banque Indosuez Helsinki Branch, Citibank International, Skandinaviska Enskilda Banken, Handelsbanken, Unibank, Hambros Bank and Den Danske Banken. Nine foreign banks have representative offices in Finland. The commercial banks are limited companies.
Foreign Exchange Controls Affecting Trade
All Finnish foreign exchange controls have been abolished.
General Financing Availability
The Finnish financial market is a typically European environment where banks and financing institutions have the dominant role, although insurance institutions play a major role in credit supply. Insurance companies, through their management of compulsory insurance schemes of the public social security system, lend a substantial part of the money back to the companies that pay the compulsory premiums. Financing is also available through the stock exchange and the government's financing systems. There are only a few risk venture agencies in Finland.
How to Finance Exports/Methods of Payment
Financing and guarantees for exports are provided for by government-owned companies or agencies. Depending on the nature of the goods exported and on the risks connected to trading partners, a portion of the export costs must be provided by the company in question. Finland prefers that, in subsidized export financing, (where Finland adheres to OECD principles), international arrangements be made with a minimum of government involvement. In addition to government activities, commercial banks provide financing, with guarantees when possible, for exports. The banks advise their customers on bank loans as well as on loans granted by other credit institutions.
Types of Available Export Financing and Insurance
Financing and guarantees for exports are provided for by the government-owned Leonia Corporate Bank and Finnvera. Major Finnish government and other programs are detailed below.
Leonia Corporate Bank: In October 1997, the Finnish government decided to combine two state owned Financial institutions -- Postipankki Ltd and Finnish Export Credit -- under a single holding company called Leonia Group. In the new group Finnish Export Credit became Leonia Corporate Bank (LCB) and sells banking services to large Finnish companies and their foreign investors. LCB is a specialist financial institution providing long-term finance. The company finances exports, industrial and infrastructure investments and other long-term corporate funding requirements. Apart from exports from Finland, the company finances domestic and overseas investments, focusing mainly on the forest and engineering industries, energy production and telecommunications sector. LCB also promotes Finnish exporting with officially supported credits, credits granted on OECD consensus terms and under the OECD understanding on export credits for ships, and concessional (mixed) credits for developing countries. LCB operates on commercial terms, is founded on good profitability and has a strong capital structure, sophisticated risk management and a first-class credit rating. It is 100 percent owned by the Finnish government.
Finnfund - The Finnish Fund for Industrial Cooperation: Similar to the U.S. government-sponsored OPIC, Finnfund promotes investments in developing countries. Finnfund acts as an agent in Finland for EU programs for the financing of investment in emerging continents. It has recently become very active in the former Soviet Union, particularly Russia and the Baltic countries. Finnfund provides equity capital as well as long term investment loans and also participates in guarantee arrangements. In addition to financing the corporation offers a broad range of fund management and advisory services. Finnfund is owned by the State of Finland, business and industry, and Leonia Corporate Bank.
NIB - Nordic Investment Bank: NIB is a multilateral financial institution owned by the five Nordic countries. Its head office is located in Helsinki. NIB extends loans and provides guarantees on normal banking terms for export and investment projects in line with Nordic interests. Loans and guarantees are given to investments that assure energy supply, improve infrastructure or support research and development. The core of NIB's international lending consists of project investment loans, which are granted to projects with Nordic participation, usually with a government guarantee. For the last three years, NIB has granted loans to private sector infrastructure projects outside the Nordic region, co-financed with other multilateral financial institutions. It also grants long-term collateralized loans.
Finnvera: Finnvera is a specialized financing company promoting Finnish exports by offering export credit guarantees and supporting domestic operations of small and medium sized companies by offering risk financing and guarantees. Owned entirely by the Finnish state, Finnvera was formed by merging the activities of Kera Corporation and the Finnish Guarantee Board (FGB) on January 1, 1999. Finnvera's domestic development and financing solutions are particularly geared towards small and medium- sized companies, and thus Finnvera also helps to promote the government's regional policy objectives. Finnvera is the official Finnish export credit agency (ECA) providing export guarantees and insurance. Finnvera's export credit guarantee and insurance commitments are fully guaranteed by the state of Finland.
SITRA and TEKES: SITRA (the Finnish National Fund for Research and Development) and TEKES (the Technology Development Center) are public financing institutions with the purpose of strengthening the role of research in economic life and promoting new products with the aim of introducing internationally competitive high-technology products and production methods. SITRA makes equity-related investments in high-tech companies during their start up and growth stages and finances management buy-outs, spin-offs from large and medium-sized companies (corporate venturing) and the corporation of these new businesses. TEKES stimulates and coordinates research and development projects between Finnish companies, universities and research institutes and their foreign counterparts. Activities should diversify production structures, increase production and exports, and create a foundation for employment and well being.
Ministry of Trade and Industry: The ministry and its regional Business Service Offices offer subsidies for investment in the form of regional investment aid, aid for small businesses or development aid for small and medium size enterprises (SMEs). Special investment and start-up aid is available for small companies in the whole country, especially in rural areas and structural adjustment areas. This subsidy can be up to 45 percent of the investment in development areas and up to 15 percent elsewhere in the country. SMEs can obtain special development aid for improving their competitiveness in the long run or operations increasing internationalization. The ceiling of aid for product development projects is 35 percent which, however, can be exceeded by 5 percentage points inside the development area. The ceiling of aid for using experts is 50 percent, which is available throughout the country.
Project Financing Available
Leonia Corporate Bank and Finnfund provide financing for overseas projects. Participation of third country firms in projects is possible. The Nordic Investment Bank grants investment loans for Nordic projects, and also finances projects in third countries.
Banks with Correspondent U.S. Banking Arrangements
All principal Finnish banks have extensive correspondent relationships with U.S. banks, maintaining relationships with banks in every state as well as with all of the larger financial center banks. Further information on correspondent relationships can be obtained from the Finnish Bankers' Association, P.O. Box 1009, FIN-00101 Helsinki; tel: 358-9-4056 120, fax: 358-9-40561-291.
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Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title17, United States Code.
