Risks of the Finnish state guarantee system

Abstract

In this report, we evaluate the risk exposures of the Finnish state guarantee portfolio in terms of its two main components: the guarantees for export credits and guarantees for the domestic housing market. We find that even though the proportional shares to GDP of both these components in the overall state guarantee portfolio, and especially that of export guarantees, have increased considerably in recent years, the risks are not completely in line with the actual sizes or GDP shares of the positions if the real economic and financial market developments (globally and in Finland) follow the current path. The main ingredient of the export guarantee exposure of Finnvera plc is the high concentration of guarantees in certain firms and industries. However, because the system also includes the possibility of issuing guarantees to large international companies for buying the products of Finnish companies, this actually reduces the overall risk position when using the current macro and financial market risk factor values. However, the international diversification also imposes an additional layer of risks on the export guarantee portfolio if for some reason world economic and financial market developments begin to resemble the situation around the Global Financial Crisis (GFC). In that case, the effects on expected shortfalls from the export credit guarantee portfolio would be dramatic. As regards the housing market guarantees, we find that the single most important risk factor is the real economic development of the Helsinki area, because the majority of the overall Housing Fund guarantee portfolio is allocated there. It alone is responsible for similar sizes of losses in an extreme situation of slowing GDP growth as the other city areas in the housing market guarantee portfolio in total. In terms of the effects on the expected shortfall from the housing market guarantees, a decline of 1.5% in Helsinki’s real growth corresponds to a decline of 10% in all the other cities.