The European Guarantee Fund eases the burden on banks to keep companies afloat across Europe. Here’s how this COVID-19 bank lending tool works in Finland and Sweden

By Chris Knight and Claire Shirley

Petri Vartiainen has his hands full as a senior adviser in export finance.

“Who knows what the future will bring or whether the pandemic will linger on and on,” says Vartiainen, who works at Finnvera, a public finance institution in Finland that provides loans and guarantees to companies and supports Finnish exports in sectors such as shipping, telecommunications, forestry, mining, metals and energy.

The pandemic is hurting all types of businesses, especially exporters linked to the global market. Companies still need cash flow to pay their expenses and make investments to stay competitive.

One big break banks need right now is the ability to give more loans at affordable rates. The European Guarantee Fund, a  COVID-19 safety net from the European Investment Bank, comes at the right time. The European Guarantee Fund allows banks to help more companies survive and grow at a time when many of them thought they might have to postpone spending.

“This is really helping financial institutions like Finnvera reach out to local companies deeply affected by COVID-19 and give them access to finance,” says Roxana Popescu, a loan officer at the European Investment Bank who works on loans in the Nordic region.

In April 2021, the EIB guaranteed a big piece of Finnvera’s future loan portfolio, enabling the firm to make up to Є650 million in new financing available to medium and large companies.

© Finnvera

The loan guarantee is helping Finnvera and other banks reach out to more local companies hurt by the crisis.

Paying bills while revenues are falling

The European Investment Bank set up the European Guarantee Fund in 2020 to help companies stay afloat, to recover from the COVID-19 crisis and keep investing in the green transition. The guarantees will be covered collectively by the EU countries participating in the programme.

The EIB has signed dozens of similar guarantees across Europe to bolster the economy. This Guarantee Fund has distributed about two-thirds of the almost €25 billion that is available. These investments could mobilise as much as €200 billion for the European Union economy.

The Guarantee Fund is part of a European Union recovery package worth well over half a trillion euros that is helping parts of the continent that have been hurt the worst.

5 ways COVID-19 hurts business

  • People can’t go to work, causing big employment gaps
  • Economic productivity drops because of a lack of workers or breaks in supply chains
  • Supply chain disruptions lead to higher prices at stores
  • Labour shortages create wage inflation
  • Companies stop investing or they reduce operations to stay alive

New pain for exporters

Finnvera’s role as a state financier is to complement the financial markets and increase the number of new companies in Finland, while helping old companies grow. It is the official export credit agency of Finland, so it also helps its portfolio of about 26 000 clients sell more products globally.

Many big export companies experienced a delay in the pain inflicted by the pandemic, because their orders are often placed far in advance. Finnvera and other Finnish financial institutions had estimated that the country’s export companies and their contracting chains would begin to feel the crisis by the end of 2020. This wasn’t good for the Finnish economy, which is supported by a large export industry in areas such as forestry, chemicals, technology and ship building.

“When the pandemic began, we started preparing ways to face the challenges ahead,” says Vartiainen, the senior Finnvera adviser. “I think the Finnish economy is doing rather well compared to many other countries, but the pandemic is still very much here, so we don’t know what that means for the many different industries in the future. The EIB has been and is a valuable partner for Finnvera and the Finnish financial sector.”

© Finnvera

Petri Vartiainen does not know what the pandemic will do eventually to many industries in his country.

COVID-19 bank lending in Sweden

The European Investment Bank signed a similar guarantee with the Swedish Export Credit Corporation, known as SEK, which will allow it to provide €467 million in new loan for medium and large companies. The total benefit to the Swedish economy from this deal could be as much as €1.1 billion. The EIB invests about €2 billion a year in Swedish projects.

Like Finnvera, SEK is a state-owned company that supports exporters, their suppliers and international buyers. Since 1962, SEK loans have helped hundreds of Swedish companies, including Ericsson and Volvo Trucks, increase production, make acquisitions, add employees and sell more products across the globe.

Erik Welin, a loan officer at the European Investment Bank who worked on the SEK guarantee, says the European Guarantee Fund “enables us to support the recovery and the reconstruction of the economy. This work is important given that we’re moving towards opening the economies again.”

It is good to be open to many types of assistance during a crisis.

“We are keen to have access to as many tools as possible to support our clients,” says Richard Anund, a senior SEK manager.