• Demand for EKN’s guarantees has risen strongly. We issued 1,496 offers to guarantee risk in export transactions in 124 countries.
• The volume of offers was SEK 69 billion, compared with SEK 46 billion the previous year – an increase of 52 percent.
• We ended the year with our largest ever volume of outstanding guarantees – over SEK 105 billion.
• Parliament and the government granted an increase in our guarantee limit. We can now issue guarantees for up to SEK 350 billion, with effect from 1 January 2009.
• We welcomed 100 new customers.
• We strengthened our skills supply with new recruitments and investment in training.

Karin Apelman, EKN’s Director General.

The most significant event for EKN happened when the year was drawing to an end. With demand for EKN’s guarantees rocketing, we quickly obtained an extended guarantee framework to allow us to respond to the rising demand.

Demand sky high

Evidence of increasing demand for our solutions can be seen in all our figures for 2008. The number of offers rose to 1,496 compared with 1,387 the previous year. The volume of offers increased to SEK 69 billion as against SEK 46 billion the previous year. The volume of guarantees issued during the year rose to SEK 33 billion from SEK 24 billion the previous year. At the end of the year, our total commitment, made up of offers and guarantees, was SEK 183 billion, compared with SEK 158 billion at the same point the previous year. We reported a result of SEK 820 million for the year. This strengthens our already stable position.

Small and medium-sized companies’ export activities play an important role in Sweden’s future success on the global markets. In recent years we have intensified our efforts to design guarantees which suit the needs of smaller companies. We have also worked to raise companies’ awareness of EKN. The pattern of more companies starting to use EKN’s guarantees to develop their exports has been in evidence for several years. Last year, 99 new customers joined our customer ranks, while this year the number was 100. All but a few are small and medium-sized companies.

With EKN’s involvement, export transactions in both established and new markets are still possible. Customers can see business potential more easily with EKN as their natural risk partner.

Risk means responsibility

At EKN, we bear an important responsibility to expand our activities in order to fill the empty space which materialises during restricted market capacity. At the same time, we must also maintain control over our risk exposure. Although this applies all the time, it is particularly important at the present time, in view of macro-economic trends. The very essence of our business is assessing risk. We do this every day in the transactions we assess. And our responsibility is founded on this core competence.

The second half of the year showed an increase in the number of payment arrears in many of the guaranteed transactions, although we still had a low level of indemnifications. We paid indemnifications totalling SEK 50 million during the year, compared with the record low SEK 12 million the previous year. With instability in the global economy, we expect to see an increase in suspended payments for transactions. In many cases, arrears are a sign of impending losses.

Taking even more responsibility

In the global economy, we as well as other players in the credit insurance market, face similar issues and challenges. When the export credit agencies’ association Berne Union held its annual meeting in Canada at the end of the year, the financial crisis was at the top of the agenda. Many agreed with us that lenders need better protection, and companies are increasingly viewing credit insurance as a means of strengthening their financial position. Another common issue was how export credit agencies around the world approach corporate social responsibility. We invited Atlas Copco’s CSR Manager to the meeting and gave a joint presentation of how we cooperate in the area of corporate social responsibility.

International contacts are also established when we participate in business delegations. When EKN’s employees visit various parts of the world together with companies, visiting their customers and subsidiaries, these companies are able to see more potential. We reach out to more companies and we can do more. At the moment, we have one employee based in Abu Dhabi. This gives us a presence in a region where it is very much in companies’ interests to conduct more transactions with EKN’s help. The Board of Directors too is committed to building up our international network, and visited OECD’s Export Credit Group in Paris and Swedish companies in the United Arab Emirates during the year.

And we can do more

EKN’s 75-year history guarantees Swedish export a constant partner. An influx of new customers, increasing numbers of applications, an extended framework and a strong financial position all provide a solid platform for promoting Swedish exports and the internationalisation of Swedish business – both in good times and bad.

Lennart Nilsson stood down as Chairman of the Board at the mid-year point, and I would like to extend special thanks to him for his teamwork and the commitment he has shown EKN over a large number of years. I would also like to take the opportunity of welcoming the new Chairman, Dag Klackenberg, and thanking him and the rest of the Board for their contribution during the year.

And finally, to EKN’s skilled and committed employees – a grateful thank you for the last year. Together we are ready to face a year of increasing demand combined with uncertainty in the global financial development.

Karin Apelman

EKN shall promote Swedish exports by offering competitive export credit guarantees and investment guarantees.
EKN’s export credit guarantees are often a pre-requisite for export transactions to take place. During the year, we offered export credit guarantees for 1,496 transactions in 124 countries. There was no demand for the investment guarantee during the year. More information can be found on chapters Export potential, Small and medium-sized enterprises, and Large corporates. For an overview of the total number and volume of the different offers and guarantees issued, please see table Scope of guarantee operations.

The business shall achieve break-even in the long term.
The result for the year was SEK 820 million. This strengthens our already stable position. More information on the result can be found in chapter Results and reserves, in the Income statement, and in the Balance sheet.

EKN shall work to encourage competitive neutrality between different government-supported export credit and investment guarantee systems internationally.
EKN’s guarantees stand up well in comparison with those of other export credit agencies. In the OECD and the EU, we have championed issues concerning competitive neutrality, including competition between companies in countries not covered by OECD rules and regulations.
More information on EKN’s work to achieve competitive neutrality can be found in chapter International cooperation.

EKN shall ensure that the promotion of Swedish exports by means of guarantees, is carried out in collaboration with other Swedish export-promoting bodies, and is presented as part of Sweden's overall export promotion.
EKN works in collaboration with the Swedish Export Credit Corporation, Almi, the Swedish Trade Council and Swedfund to provide comprehensive and integrated export promotion.

• We have run seminars with Almi and the Swedish Trade Council.
• Almi’s subsidiaries can now supply EKN counter guarantees and working capital guarantees.
• In 2008, export loans totalling over SEK 150 million were granted to 29 companies.
• We have taken part in delegations arranged by the Swedish Trade Council.
• EKN, Swedfund, the Swedish Export Credit Corporation, Almi, the Swedish Trade Council, Nutek and Swentec work together in the environment technology export group.

More information on Sweden’s overall export promotion can be found on section Small and medium-sized enterprises and section Large corporates.

EKN shall endeavour to increase interest in and awareness of the agency’s activities, and adapt its products and services to customer demand. EKN shall invest more in guarantees for small and medium-sized enterprises and work actively to broaden its customer base.
Small and medium sized enterprises’ awareness of EKN increased compared with the previous year. Companies’ knowledge about EKN has increased by 16 percent over the last three years. The influx of new customers has continued. EKN obtained 100 new customers in 2008. In the second half of the year, there was a rise in customer demand for products which include risk sharing with financing banks. We therefore expanded the area of application for the working capital guarantee.

More information on the broadened customer base and the focus on small and medium-sized companies can be found in section Small and medium-sized enterprises.
More information on adaptation of products can be found in section Large corporates.

EKN shall limit the risks associated with issued guarantees by risk sharing. EKN shall aim to spread the risks in its exposure, and limit the concentration of risks. In new transactions, EKN’s current risk exposure shall be taken into consideration.
As a result of reinsurance in the private market and with governmental export credit agencies, it has been possible to reduce the provision in the annual accounts by approximately SEK 1.7 billion. In new transactions, we assess the concentration risk.

EKN shall develop its loss prevention and recovery activities, with the aim of limiting losses.
This year too we have had few problem transactions and a low level of indemnifications. In a small number of transactions we have, among other measures, renegotiated the financing, visited debtors, engaged lawyers on site and engaged representatives in an attempt to recover claims.

EKN shall work closely with customers to make the indemnification process more efficient.
Indemnifications have been at a very low level in recent years. With risks of loss increasing, the organisation has taken measures to ensure it is prepared for a possible increase in the number of claims. Internally, we have improved our system support for recovery work.

EKN shall develop its work in addressing ethical considerations (environment, bribery and social issues) associated with the issuing guarantees. EKN shall keep customers informed about the Global Responsibility initiative and the OECD guidelines for multinational companies. EKN shall comply with regulations and guidelines issued by the OECD concerning anti-bribery and environmental/social issues. EKN shall also strive towards a sustainable debt situation. Particular consideration must be made when issuing guarantees to heavily indebted least developed poor countries, and EKN shall follow OECD’s Guidelines to Promote Sustainable Lending Practices. EKN’s business activities shall contribute to Sweden’s primary goals on fair and sustainable global development.
During the year, EKN adopted a new policy which summarises the ethical considerations it makes when issuing guarantees. One new development is that more social issues are now included. The policy is in line with OECD’s regulations on anti-bribery, environmental and social issues and sustainable lending. More information on corporate responsibility in guarantee issuing can be found in section Corporate responsibility.

EKN shall work to provide a good level of service to the public and companies by means of service obligations and dialogue with users. All services which can be provided electronically with equal or increased cost-efficiency, shall be provided electronically and in a user-friendly way.
We have launched a new online customer web. Customers can log on with e-identification and access the basic guarantee. The next guarantee to become available electronically will be the loss on claim guarantee for long credit periods. On-line guarantee management brings improved efficiency for export companies, banks and EKN itself.

More information on the new customer web can be found in chapter Export opportunities.

EKN shall participate in international activities affecting its operations.
We participate in the activities of the Berne Union export credit association, the OECD, the EU and the Nordic Cooperation.
More information on EKN’s participation in international networks can be found in chapter International cooperation.

EKN shall report on the measures it has taken to ensure it has the right expertise to achieve the objectives for its activities.
Our new recruitments have increased the size of the organisation to 115 full-time equivalents. A large-scale training programme has been implemented.
More information can be found in chapter Employees.

EKN started its operations 75 years ago as a temporary measure in a time of economic crisis. However, time has shown that state guarantees are not only needed in times of crisis but also in periods of economic growth. The present crisis shows how important EKN is when financial markets are unstable. Looking back at previous crises gives us a perspective and understanding of the present situation.

The dramatic chain of events which has been unfolding on the financial markets shows how dependent the real economy is on well functioning money and capital markets. Even in late summer 2008, no-one expected the US sub-prime mortgage crisis, which emerged in 2007, to spread globally as it has done. The fact that investment banks and commercial banks across the globe were exposed to this more or less sophisticated risk protection of mortgages triggered a chain reaction.

Long-term effects of crises

Many Swedish export companies have been affected in that their customers are having difficulties financing their purchases. Unwillingness on the part of financing banks to help with working capital loans, long-term loans and other credits has resulted in reduced business volumes. With banks and private credit insurance companies becoming less willing to take on risk in export transactions, the need for EKN has increased. Consequently, the financial crisis has clarified EKN’s mission to offer risk coverage in circumstances where market solutions are lacking or are inadequate.

It is difficult to ascertain the long-term consequences of an ongoing crisis. The situation often appears dramatic, with deep and possibly lasting negative effects on the economy and societal functions. In view of EKN’s many years as a risk taker and pioneer of Swedish export, it may be of interest to look back at previous revolutionary events in the world.

The market economy’s advantage

As the planned economies dissolved in the late 1980s and early 1990s, the market economy became the prevailing economic system in the world. This brought with it increased trade liberalisation, fewer restrictions on capital flows and an accelerated rate of production relocation to the new emerging markets. In a number of countries, particularly those in the former Soviet Union, the changes also involved a move to democracy.

These developments created an environment of increased economic growth and reduced poverty. However, rapid change leaves economic, financial and political imbalances in its wake more often than not. In the mid and late 1990s, these imbalances plunged many emerging countries into crisis.

Lower credit ratings for many countries

Momentous crises in that period include Mexico’s Tequila crisis and the Asian crisis, which coincided with the crisis in Russia. Turkey and certain Latin American countries were also affected. A common feature of the turbulence was that all these countries experienced rapid growth in imports without earning the hard currency required to finance them. This created massive current account deficits. In many cases, these deficits were temporarily financed by international banks. Fixed exchange rates made it impossible for market adjustments of the deficit via exchange rates. The crises were exacerbated by weak banking systems, corruption and a lack of transparency.

Countries, companies and banks found themselves experiencing payment difficulties and were forced to renegotiate agreements with their creditors. The crises left many borrowers and countries with increasingly lower credit ratings in the early 2000s. On EKN’s country scale, half of the 176 countries which were classified in summer 2000 were in the highest risk categories 6 and 7. The average classification was 4.6.

Rapid recovery

The general consensus at the time of the crises was that recovery would be protracted and painful. No-one can deny the crises were painful. Initially, GDP fell sharply, while unemployment soared. However, the relatively rapid recovery came as a surprise. In a matter of three years, respectable new growth had been established, with current account surpluses and a gradual improvement in state finances.

In many countries the recovery was triggered by a strong competitive situation for the export industry as a result of weaker currencies. This brought increased hard currency earnings, with imports taking a back seat. The foreign debt which existed before the crises, and which grew during them, could thereby be gradually reduced. Heavily indebted countries and companies were helped by globally falling interest rates and risk margins. However, the lower interest rates and risk margins were not entirely beneficial and compounded the present financial crisis.

The recovery was also aided by sharply rising commodity prices since the start of the new millennium. This generated substantial foreign currency revenue which countries were able to use to finance more imports and repay existing foreign debt. High commodity prices also benefited countries not affected by the crises in the late 1990s. This applies in particular to certain countries in Africa, Latin America and the Middle East.

This trend is reflected in EKN’s country classification, with EKN gradually upgrading countries’ risks in the years between 2000 and 2008. Forty-seven of the 176 countries which EKN assessed and classified at the end of 2008 were in risk category 7, compared with 70 countries 8 years ago. There were also more countries in the best risk categories, 0 and 1, than 20 years earlier. EKN’s country classification at the end of 2008 does not show any significant differences from the position at the beginning of the year. At the beginning of 2009, six countries were re-classified as more difficult risks.

Stronger emerging markets

As many countries are afflicted by crisis at present, it is worth looking at how previous crises have unfolded in order to identify similarities and learn from them.

Crises expose structural and institutional deficiencies. Although there has been some understanding of these problems in many countries, the ability to tackle them has often been lacking. History offers many examples of how a crisis can act as a catalyst to making long-needed decisions. One such example is the 1991 balance of payments crisis in India, which resulted in the implementation of market economy reforms and other measures. These reforms have helped boost economic growth. South-east Asian countries, Turkey and Russia are other examples of countries having made changes in their regulatory frameworks and institutions which have proved beneficial to economic development.

The causes of the present crisis exist outside the growth regions, particularly in some western countries. This probably means the economic downturn will be long-lasting, as will the recovery. On the other hand, reforms implemented during the last ten years in countries in Asia and Latin America, for example, leave many of these countries better equipped to cope with the current financial crisis. In addition, lower indebtedness levels than at the end of the 1990s and a strengthening pattern of trade between emerging markets reduce the risk of a return to the generally weak credit rating scenario we saw in 2000 outside the West.

We can see in the rear-view mirror that changes progress rapidly. Much has been changed in the space of a few years, and this may well happen now too. We can also see that even when the map showed much more red ink, there was business potential and EKN issued guarantees for projects in high-risk countries. The latest crises have not involved significant losses for EKN. We have the experience and financial strength to help us work in a long-term perspective.

At year 2000, the majority of countries were classified as high risk.

In year 2008 the map was dominated by lower country risk classification.

Demand for EKN’s guarantees has risen strongly. Both small and large companies in different sectors need to guarantee business risks. Our customers are more satisfied when we act quickly.

In good times, EKN’s guarantees are mainly in demand for transactions in new markets and with new customers. In more difficult times, exporters and banks need our guarantees for new and old markets and customers. We have noted increasing demand in recent years and this really took off in the second half of the year. We issued 1,496 offers for transactions in 124 countries, which is more than in any previous year. We also set a volume record. The volume of offers increased to SEK 69 billion during the year compared with SEK 46 billion the previous year.

Risk protection for export transactions is in demand from small and large companies alike in a number of different industries.

Faster processing and on-line guarantees

We regularly ask our customers if they find us fast enough, if we give clear information, if we adapt to their needs and if they would recommend EKN to others. We also ask them to rate us. Last year, they gave us an average of 4.0 on a scale of 0 to 5, where 5 is the best. This year, the average rose to 4.3. One reason for the improved score is that we have substantially cut the time from offer decision to communication of the decision to the guarantee holder.

During the year we launched EKN online. This allows our guarantee holders to apply for a guarantee, manage the application online and obtain a list of applications and guaranteed transactions.

Demand for EKN’s guarantees has been high. The number of applications spiralled during the second half of the year. Awareness of EKN continues to grow among companies and banks.

The year was marked by continuing high demand for EKN’s guarantees from small and medium-sized export companies and local bank branches. The total number of applications was 767, which is an 18 percent increase on the 2007 figure of 648. The rise in applications was sharper in the second half of the year. The financial crisis in the autumn and an impending recession have had a major impact on small companies' ability to conduct business transactions and obtain risk cover. Risk capacity on the private market has been very limited at times.

There has been a considerable influx of export companies contacting us, and EKN attracted 100 new customers in 2008, most of them small companies.

We have guaranteed export transactions involving goods and services from a wide cross-section of industries, including engineering products, food, commodities, steel, paper, chemicals and environmental technology. We have also guaranteed all types of business formats from standard transactions with short credit periods to more complex formats with longer credit periods. The four countries for which EKN issued the largest number of offers were Nigeria, Iran, Sweden (for working capital guarantees where Swedish companies are the counterparty) and Russia.

More counter guarantees and working capital guarantees, but more losses too

Application statistics show that bank lending to small companies has been restrictive recently. Demand for counter guarantees, which shift some of the banks’ risk on the exporters, fell sharply in the latter part of the year, but showed an increase for the full year. Demand for working capital guarantees was more stable and increased during 2008. The working capital guarantee is aimed at helping companies obtain a better capital supply, but can only be used to supplement capital borrowed from a bank.

The fact that the global economy has deteriorated was also reflected in the increased number of delays in payments in the latter part of the year. In addition, the volume of indemnifications to small and medium-sized companies, which had hit record lows in recent years, increased to almost SEK 40 million, compared with SEK 3 million the previous year. Two losses out of 17 accounted for approximately 80 percent of the volume of indemnifications paid.

Market initiatives pay off – awareness of EKN increases

Awareness of EKN and our guarantees used to be relatively low among small and medium-sized companies. In spring, for the third year in a row we conducted a nationwide survey of small and medium-sized companies and local bank branches to measure their awareness of EKN and our guarantees. It was encouraging to note that our market initiatives in recent years have borne fruit. Companies’ knowledge about EKN has increased by a total of 16 percent over the last three years. It was particularly positive to note that our initiatives targeting local bank branches around the country have resulted in knowledge about our guarantees increasing by a massive 150 percent since 2006. The local bank branches are an important target group and represent a channel for EKN’s work in promoting small companies' exports. In the autumn, we visited some fifty banks around the country.

Autumn also saw the start of a series of seminars, at which we, Almi and the Swedish Trade Council explained to export companies and banks how our organisations can help them conduct more business transactions, and safer ones too. The seminars attracted keen interest and were greatly appreciated, and we will continue to hold them in several locations in 2009. We follow up the seminars by sending out information. This ensures knowledge about EKN is retained, and also allows us to establish contact with companies and banks for further discussion on concrete business transactions.

As in previous years, we also took part in a number of export seminars and meetings to which banks and other organisations invited their customers for information-gathering purposes.

Cooperation with other promoters

EKN is committed to increasing its cooperation with other export promoters. For a few years now we have had strategically important collaboration with Almi, whereby their subsidiaries around the country are able to issue EKN’s counter guarantee and working capital guarantees.

The Export Loan, which was introduced in 2007, is the result of cooperation between EKN, Almi, the Swedish Export Credit Corporation, the Swedish Trade Council and Swedfund. The loan, which is managed by Almi, is aimed at facilitating financing of small and medium-sized companies’ export activities. In 2008, export loans totalling over SEK 150 million were granted to 29 companies.

Our large corporates business area was mainly involved in responding to increasing demand for guarantee offers, developing the potential that our new mandate has unfolded and designing solutions to counter the lack of risk capacity.

There were a large number of applications from large companies for transactions in established and newer markets. Statistics show the global nature of our business. We issued 853 offers in 103 different countries. About 30 of these countries are heavily indebted emerging countries. The large projects in these countries include a telecommunications project in Bangladesh, with Ericsson the exporter, a pulp mill in Vietnam, with Metso an important project supplier, and Volvo’s truck exports to Angola. A large proportion of the transactions in this type of country were covered by letter of credit guarantees, with EKN sharing the risk with the bank. Demand for the letter of credit guarantees was concentrated on certain countries – in particular Nigeria and Bangladesh.

At the same time, almost a quarter of the year’s offers concerned transactions with three countries – Iran, Russia and Turkey. We have adopted a more restrictive policy with regard to offers for transactions with Iran and we declare banks off cover if we see a likelihood of UN sanctions being imposed on them. The number of offers for Iranian transactions fell to 90 from 128 the previous year. In transactions with Iran, we work with the Swedish Inspectorate of Strategic Products (ISP) as some exports to Iran require an ISP licence.

In the autumn, with the financial crisis deepening noticeably, demand for EKN's guarantees rocketed. There were 136 applications from large companies in November, which was 55 percent higher than the 88 which we received in November 2007.

Large companies often have a long lead time between tender and contract. With this in mind, EKN comes in at an early stage and issues a guarantee offer well before the company needs a guarantee and requests one. One-tenth of offers to large companies became guaranteed transactions during the year. Some of the large transmission projects in Africa for which we issued guarantees this year are transactions for which we issued offers two years earlier. Other examples of offers which have been needed well in advance include ABB’s projects in Angola and Namibia, Eltel’s project in Botswana and several large Ericsson transactions in India, Pakistan and Turkey.

Doing more for foreign subsidiaries

In mid-2007, EKN was given a broader mandate. With the focus on export links and Swedish interests, we can now guarantee global transactions, without being restricted to transactions involving a specific quantity of Swedish goods. Several large export companies have welcomed the change. We exercised the mandate in twenty or so of the year’s transactions, guaranteeing transactions with Swedish interests, where the guarantee holder was a foreign company. These included transactions for subsidiaries of some of our large corporates such as Ericsson, Volvo and Scania. Some were individual transactions, while others were portfolios of risks relating to the subsidiary’s customers in another country.

The work involved in dealing with legal obstacles to guaranteeing transactions between parties in the same country is continuing in the new financial year. This concerns countries such as Russia, Brazil, Turkey, Argentina and Chile, where the insurance legislation makes it difficult for EKN to guarantee transactions in the country.

Cooperating for risk capacity

In the autumn, lack of financing became an increasingly difficult issue for our customers. We have worked to adapt our guarantee issuing to the new situation. One of our responses in autumn was to intensify our cooperation with banks and the Swedish Export Credit Corporation (SEK) in order to release risk capacity for export transactions.

The new solutions we produced are much needed in a market which is suffering from a lack of capital. We expanded our working capital guarantee for small and medium-sized companies so that it can be used by large companies. The working capital guarantee allows the bank to share the risk with EKN when it issues working capital credit in the form of loans or different types of overdraft facility. We issued two of these guarantees in December 2008 and received a large number of enquiries. We also produced a solution for bonds. With a bond guarantee, the bank shares the risk with EKN when it purchases the export company’s bonds or certificates. This solution has also attracted keen interest. The expanded working capital guarantee and bond guarantee are solutions which help export companies gain access to risk capacity. This then allows them to continue and increase their export activities.

The solutions mean we assume the risks associated with Swedish companies’ financing. Judging by demand, the likely scenario is that Sweden will dominate EKN’s risk exposure. In the financial crisis, EKN’s role of assuming risk with regard to Swedish companies is at least equally important as its risk-taking with regard to the ability of foreign buyers to pay.

Arrears on the increase

Trends on some of the established markets took a negative turn, resulting in a dramatic increase in the number of payment arrears. The number of payment arrears in the last quarter was higher than the previous three quarters put together.

Most of the arrears related to the automotive industry in Russia, Ukraine, Turkey, Oman and Qatar. Carriers in these countries have had problems due to the slowdown in activity in transport-sensitive industries such as construction and car manufacture.

However, in most cases, the arrears have not gone on to become losses. This has been avoided by various loss prevention measures – the most common being deferred payments and extended payment plans. During the year, indemnifications to large companies only amounted to SEK 10 million. However, the risk of losses has increased significantly and we are prepared for an increased number of claims.

Marketing and customer relations

To celebrate EKN’s 75-year jubilee, while also establishing contacts with companies which have not yet used EKN, we invited representatives of export-intensive companies to a lunch which was also attended by Sweden’s Minister for Trade Ewa Björling. We have also worked closely with the Swedish Trade Council’s international offices, which play an important role as advisers to exporting companies.

At the training days we arranged for our customers, we met some sixty representatives of large companies. With them, we reviewed how we work together in the transactions –from guarantee request to indemnification and recovery. We also discussed the business potential unleashed by our extended mandate. These meetings give us valuable information about our customers’ needs and views on our work.

During the year, we adopted a new policy which summarises the ethical considerations we make when issuing guarantees. One new development is that more social issues are now included.

EKN wants to contribute to corporate responsibility. The ethical considerations we incorporate into our guarantee operations include the environment, social issues, elimination of bribery and corruption and promotion of sustainable lending to poor countries. Our new policy includes these ethical considerations, which previously had separate policies.

The new policy includes more social issues than before. When issuing guarantees, we now also take into consideration the working conditions in the project or buying company – such as health and safety, child labour and forced labour.

The new policy was adopted on July 1, 2008 and is being implemented gradually. The policy involves building up our expertise in corporate responsibility and human rights and formulating methods for managing these issues in our operations. EKN’s staff regularly undergo training in corporate responsibility.

It is important for us to incorporate dialogue with customers and other interested parties into our corporate responsibility development. When the Berne Union, the association for export credit and investment insurance, held its annual meeting, we and our customer Atlas Copco gave a presentation of how an export credit agency can work with its exporters in the area of corporate responsibility.

Environmental classification

Under EKN’s environmental policy, medium and long-term export transactions are classified into three categories, A, B or C, according to their potential environmental impacts. Category A signifies a major risk of a negative impact on the environment, B a lesser, C a minimal or no impact on the environment.

Most of the transactions with medium- and long-term credit periods that we guaranteed during the business year fell into the C category. In other words, they were judged to have minimal or no environmental impact.

The table below shows the transactions over SEK 100 million in environmental categories A or B for which we issued guarantees during the year. In addition to these transactions, we also deal with environmental issues in many transactions below SEK 100 million and transactions for which we have not yet issued guarantees.

More environmental awareness

During the year, EKN took part in a knowledge-building programme based on the OECD’s environmental guidelines ‘Common Approaches’ (revised in June 2007) in the framework of the OECD’s international environmental cooperation initiatives. Exchange of information and experience with regard to environmental reviews of transactions has been strengthened as a result of increased cooperation within the network of environmental experts.

Cooperation on environmental issues

EKN, Swedfund, the Swedish Export Credit Corporation, Almi, the Swedish Trade Council, Nutek and Swentec have been working together in the environment technology export group since autumn 2006. More partners have joined, and at present the Swedish Energy Agency, Sida (Swedish International Development Cooperation Agency) and Vinnova (Swedish Governmental Agency for Innovation Systems) are also participating. The purpose of the cooperation is to help environmental technology companies grow, export and, particularly important, obtain good project financing. Joint seminars and company visits have been arranged and the cooperation will continue in its development.

Heavily Indebted Poor Countries

EKN takes into consideration the debt situation of heavily indebted poor countries. We only participate in projects which are economically viable and financed by donations or loans with preferential terms. This applies to the issuing of guarantees which increase direct or indirect state indebtedness in countries which have restrictions in their commercial borrowing. Companies have transactions with private buyers in these countries, and we guarantee these transactions.

In 2008, the OECD decided on a general policy for issuing guarantees to heavily indebted poor countries. This will not affect EKN to any considerable degree, as we have been applying a similar policy for some years.

Issued during the year

Outstanding at year-end

The volume of outstanding offers and guarantees was considerably larger than at the end of the previous year. This was due to more large transactions and a large number of applications in the latter part of the year. The proportion of sovereign risks and other public risks continues to fall as the new transactions mainly involve risk-taking on private buyers.

The total volume of outstanding offers and guarantees amounted to SEK 183 billion at the end of the year, compared with SEK 158 billion in the previous year and SEK 151 billion in 2006. Offers increased to SEK 78 billion from SEK 69 billion at the end of the previous year. The guarantee volume rose to SEK 105 billion compared with SEK 89 billion at the end of the previous year.

The increase is due to high demand for EKN’s guarantees in the latter part of 2008. A considerable number of large transactions and applications resulted in a rapid rise in the volume of outstanding offers and guarantees in the third quarter.

As in the previous year, EKN had offers and guarantees in 125 countries at the end of the year. The 15 countries accounting for the largest proportion were largely the same as last year.

Transactions in Iran and Russia represented a larger proportion than at the end of the previous year. Bangladesh, Namibia and Serbia are countries which now find themselves in the list of the top 15.

Distribution by risk and sector

Distribution by risk type changes when older transactions involving state buyers are concluded and new transactions mainly involving private buyers are included in EKN’s portfolio. The proportion of private buyers is increasing, while state and other public buyers are falling. This has been a notable trend over a number of years and can also be seen in a comparison between 2008 and 2007.

Claims on a par with previous year

At the end of the year, claims amounted to SEK 6.9 billion, which is on a par with the previous year. The largest claims are in North Korea, the Democratic Republic of Congo and Pakistan.

We received SEK 270 million plus interest from the Swedish government in payment for claims in Cameroon which Sweden had decided to write off.

Reduced risk concentration

Risk exposure is unevenly distributed among the countries. A small number of countries account for a very large proportion of our exposure and, as in the previous year, Pakistan and South Africa come out on top. In 2008, the concentration of risks fell slightly as a result of several new large, long-term commitments in the portfolio.

When estimating risk exposure, EKN considers whether there is any concentration risk in transactions and makes provision accordingly. This provision covers the risk of unexpected losses, in contrast to the expected risk for each individual transaction.

Reinsurance

During the year, EKN took out reinsurance in the private market for a single risk relating to Angola totalling USD 12 million. In addition, the contract period for a portfolio insurance of 20 commitments in 20 countries was extended by one year. In total, reinsurance on the private market amounted to SEK 4.5 billion at the end of 2008.

EKN also had reinsurance with other export credit agencies totalling SEK 1.5 billion, while other export credit agencies had reinsurance with EKN totalling SEK 17.6 billion at the end of the year.

The financial crisis meant intensified cooperation between the Berne Union (the export credit industry association), the OECD and the EU. The difficulty of covering risk in the private market is a current issue in the EU.

During the year, the financial crisis made its effects clearly felt in the area of financing and insuring against risk in transactions. Discussion in international fora largely covered ways of alleviating the situation.

Berne Union predicts continuing rise in demand

As the global financial crisis escalated in October, the 50 members of the Berne Union gathered for their annual meeting in Canada. The members expressed the view that export credit agencies should be part of the solution, by promoting cooperation and stability. In this global network, we can give each other early indications about problems in the buyer countries, sectors or projects. This can play a crucial role in preventing or minimising losses.

Most members expected to see increasing demand for their products – particularly those linked to financing banks. Many also saw the need to develop new insurance solutions.

Another topic on the agenda at the meeting was corporate social responsibility. The Berne Union has developed guidelines which act as a common set of values. Members regularly exchange their experiences of applying these guidelines and their policies. Issues relating to the promotion of green projects and climate were also discussed.

OECD countries and non-members pledge support

At the OECD export credit meeting in November 2008, the main topic of discussion was the effects of the financial crisis on financing exports. The OECD countries and a number of non-member countries were united in pledging continuing support for exporters and banks. Export credit agencies play an important stabilising role by keeping risk capacity high in order to maintain international trade flows. The meeting also highlighted the importance of respect for sound principles in underwriting and international regulations.

At the annual consultation meeting, exporters’ and banking organisations expressed a wish for temporary exemptions from OECD's rules. Discussions on more concrete measures within the OECD to facilitate implementation of export transactions continue. However, to date only minor amendments have been made to the project financing regulations.

Marketable risks topical in the EU

Exporters in EU countries have reported a more difficult climate for insuring risk in export transactions in the private insurance market as a result of the financial turmoil. EKN has also noted high demand for guarantees for marketable risks, i.e. short-term credit risk for transactions within the OECD and EU. In accordance with EU’s competition rules, this type of risk is not covered by official export credit agencies as the agency must not compete with the private market. However, with the present financial turmoil, it is proving difficult for companies to cover these risks on the private market.

The EU Commission has drawn attention to the problem and has (in a package of measures for temporary exemptions regarding state support) decided to establish an easier procedure for member states to request exemption. EKN welcomes this development and is collecting documentation from exporters, which will be required to demonstrate the problems and obtain exemption authorisation.

EKN on site in New Zealand

It is not unheard of for the more experienced guarantee agencies in the world to share their experience and expertise with newer and often smaller organisations. During previous years, EKN has been able to help the Czech Republic, Poland, Estonia and Iceland build up their guarantee agencies. For just over three years, EKN has had a large cooperation agreement with the New Zealand guarantee agency the New Zealand Export Credit Office (NZECO). EKN makes risk assessments and acts as an adviser in guarantee techniques and settlement of claims. For three months of 2008, EKN’s Head of International Cooperation Anne Abrahamson was on-site in Wellington, New Zealand, to offer NZECO support in its development.

We grew by fourteen full-time equivalents during the year. This increases the number to 115 compared with the previous year's figure of 101.

There are now 131 employees at EKN. The number at the end of the year was 118 – the lower figure was due to parental and other leave. We increased our workforce to ensure that we will manage the increased business flow in a reliable and satisfactory way for our customers. We shall also be prepared for any increase in problems and losses. Recruitment of skilled and experienced employees has gone very well, despite relatively keen competition in the Stockholm area for the expertise we seek.

In order to increase quality, handle new assignments efficiently and achieve common standards, we have established a large-scale employee training programme in guarantees, regulations, credit ratings and problem and loss management. The training programme is part of our introduction training, and we are also developing continuous training.

Skills supply goal

EKN will be a workplace able to attract, recruit, develop and retain competent personnel. EKN’s targets for this goal are listed below. Figures for 2007 are in brackets.

Uniform age distribution, with the median age in the range of 38 - 42.

The median age at the end of the year was 41 (43).

Annual staff turnover around 4-5 percent.

Staff turnover was just over 8 (11) percent.

A balanced gender representation in all skills areas – in the range of 40-60 percent.

At the end of the year, 55 (58) percent of EKN’s employees were female and 45 (42) percent were male.

Minimum average period of employment of 4 years for employees leaving the company.

The average period of employment for leavers during the year was 4 (4) years.

The result for the year of SEK 820 million strengthens our already stable financial position. EKN’s cash & cash equivalents have continued to grow and now amount to SEK 16.6 billion.

The result for 2008 amounted to SEK 820 million. This is a good result which further strengthens our already strong financial position. However, the result level is lower than in the previous three years. For a large number of years we experienced few losses, high levels of recoveries and lower provisions as a result of an improvement in global risks. Although the level of indemnifications remained low during the year, there were fewer recoveries, while the need for reserves increased.

Premiums

Net premium income for the year was SEK 525 million, compared with SEK 406 million the previous year. The premium increase is due to the increase in the volume of guarantees issued. The premium charged by EKN reflects the risk in a particular transaction. Premiums act as a reserve for future indemnification payments which EKN may have to pay to guarantee holders.

Increase in provisions

In addition to increased reserves for new transactions of SEK 625 million, the need for provisions was also affected by a number of different factors, one of the most important being exchange rate fluctuations. Many of our transactions are in US dollars and euro. With both the dollar and euro strengthening against the Swedish currency, the provision for risks in SEK has increased by 650 million.

The review of risk provisions which we always conduct before the balance sheet date has resulted in a large number of transactions requiring increased risk provision, although this is balanced by the fact that some of our large transactions require less. The only significant country with an impaired risk rating during the year was Pakistan.

The overall effect of currency fluctuations and risk changes is an increase of SEK 1.2 billion in risk provisions for expected losses.

In addition to risk provisions for expected losses, EKN makes provision for unexpected losses. A large number of future loss scenarios are simulated in EKN’s portfolio risk model. Provisions are allocated by reference to the level of concentration risk. The higher the proportion of the portfolio dominated by a small number of major risks, the higher the concentration risk and therefore the greater the need for provisions. Although concentration of EKN’s risks fell somewhat during the year, the volume of the entire risk exposure increased. This resulted in the provision for unexpected losses also rising by SEK 690 million.

EKN reinsures some of its transactions, mainly on the private market. Reinsurance reduces the need for provisions by over SEK 400 million.

The provision for risks rose by SEK 1.5 billion compared with the previous year.

EKN’s binding offer and guarantee commitments amounted to SEK 112 billion at the end of the year. This represents a substantial increase on the figure of SEK 96 billion at the end of 2007. Our provision for risks increases in line with our growing commitments. At the end of the year, the provision for risks stood at SEK 9.5 billion compared with SEK 8.3 billion at the end of 2007. This corresponds to 8.4 percent of EKN’s commitments at the end of 2008 (8.3 percent at the end of 2007).

Asset management

EKN’s earnings trends over several years have generated high levels of cash & cash equivalents. Cash & cash equivalents and securities totalled SEK 16.6 billion at the end of the year, which is an increase of SEK 2 billion. Interest income from asset management amounted to almost SEK 600 million and had an essential effect on the result for the year.

Assets in SEK are invested with the Swedish National Debt Office ranging from at-sight to fixed terms of up to 5 years. Foreign currency assets, mainly US dollar and euro, are deposited with Swedish commercial banks and bonds ranging from at-sight to fixed terms of up to 3 years.

Premiums

Premiums are charged once a guarantee has been issued. For investment and counter guarantees, premiums are charged at regular intervals. As a result, the income statement has been supplemented with estimated premiums for these guarantee types, and for binding offers. These items are included in the balance sheet under the heading ‘Receivables from guarantee holders’. For premiums in arrears, the premiums are charged as payments fall due under the guaranteed credit. The nominal premium in arrears claim, after adjustment for present value and risk, is carried as an asset under Receivables from guarantee holders. Newly recorded premiums in arrears and any claims in previously recorded premiums in arrears are reported as premium income. Periodising the present value adjustment, plus any changes in discount rates, is reported under other interest income.

Valuation of exposure

EKN’s fixed exposure is defined as outstanding guarantees, newly due amounts in problem transactions, notified postponements and binding offers. The currency for part of the long-term exposure remains undetermined at the date of contract and is thus booked in SEK.

The risk valuation of outstanding exposure is based on the premium level for risks with corresponding time to maturity at the time of valuation. A deduction is made from that part of the premium estimated to equal the administration costs. For major commercial risks a follow-up of the development of the project or the company is conducted, as well as of the premium assessed at the time of evaluation to reflect the remaining risk. These valuations result in an estimated expected risk of exposure loss under normal circumstances. In the event that part of the exposure has been reinsured, the risk for the re-insurer is estimated (see also note 2).

As a large part of EKN’s exposure is concentrated on a limited number of countries, losses in these particular countries can produce an outcome considerably more negative than normally expected. Thus special provision is made for unexpected loss in the exposure. The estimate is made on the basis of a fixed degree of security of 95%. The previously used term ’risk concentration’ is now called ’unexpected loss’.

Valuation of indemnified claims

The definition of outstanding claims is based on the indemnification amounts paid out by EKN. Deduction is made for amounts recovered or written off. Capitalised moratorium interest, overdue moratorium interest and accrued moratorium interest not yet due are added. Demands for penalty interest are not added to claims until the amount of the claim is agreed with the debtor.

Large commercial claims are investigated and valued from case to case. Valuation of claims is made in phased 5% steps. For claims against countries, the assessment is based on the country’s debt burden, its level of income, plus the extent to which it has managed its debt payments. This assessment is supplemented with details on general risk level for the country and the term of EKN’s outstanding claim. Other supplementary details used may be, for example, the prospects for claim sales or debt write-downs. As with exposure, a specific reduction is made on the claim value taking into account the fact that most claims are also concentrated on a limited number of countries with a view to ensuring a 95% probability that the stated claim value will be realised.

Other valuations

Valuation of assets and liabilities in foreign currency is based on closing day rate. Valuation of other assets and liabilities, plus accruals and deferrals of income and expenses, has been made according to normal accounting principles.

Other

By long-term investments is meant investments with an original term exceeding one year. This is in accordance with Chapter 5 Section 1 of the Annual Reports and Budget Information Ordinance (SFS 2000:605).

Computers and other computer equipment are written off over 3 years. Other office furniture and fittings are written off over 5 years.

The Swedish National Financial Management Authority has in a decision dated 11 February 2003 given EKN exemption from the terms in the Annual Reports and Budget Information Ordinance (SFS 2000:605) regarding the form of the income statement, the balance sheet and the statement of source and application of funds.

In accordance with the Terms of Reference for 2008, EKN is exempted from Section 23 of the Capital Procurement Ordinance (SFS 1996:1188).

Liquid assets are defined as Short-term Investments plus Cash and bank balances.

All amounts in SEK thousands.

The above utilisation of statutory limits set by the Parliament and the Government includes 100% of guarantees and binding offers, and 50% of non-binding offers of the corresponding amount. Claim on losses are not included in utilisation limits set.

Limits for EKN

Parliament decides on a limit for the guarantees to which EKN may commit the Swedish state. The total value of guarantees and binding offers is netted off against the limit. Offers are netted off against the limit at 50% of their amounts. Until year end the limit set by Parliament for export credit guarantees amounted to SEK 200 billion. At the end of 2007, EKN’s mandate from the government amounted to SEK 175 billion. At the end of the year, EKN had utilised SEK 151 billion of its limit. The amount utilised at the end of the previous year was SEK 129 billion. There is a special limit of SEK 10 billion for investment guarantees. At the year-end, it had not been used at all.

In accordance with a parliamentary resolution in December 2008, the limit was expanded. From Jan 1 2009 the limit amounts to SEK 350 billion.

Compilation of material information pursuant to Chapter 2 Section 4 of the Ordinance concerning the Annual Reports and Budget .

The Swedish National Audit Office has examined EKN’s annual report for the 2008 fiscal year as adopted on 12 February 2009.

The Executive management of the agency is responsible for the efficient and statutorily correct conduct of the activities. This responsibility includes submitting to the government a reliable report on the activities covered by the annual report.

It is the Swedish National Audit Office’s responsibility to examine the agency’s annual report in accordance with generally accepted auditing standards with the object of assessing the reliability of the accounts and the correctness of the accounting records, and to examine whether the Executive management’s administration conforms to applicable instructions and specific government decisions.

Our audit has been performed in accordance with generally accepted auditing standards. This means that it was planned and performed with the object of obtaining a reasonable basis for assessing the accuracy of the annual report. The audit thus involved examining a sample of the material transactions and administrative decisions.

The audit provides reasonable grounds for the statements below.

The annual report is made up in accordance with the ordinance relating to the annual reports and budget documentation of government agencies, annual budget approval documents and other decisions relating to the agency.

The Swedish National Audit Office considers that the annual report provides a true and fair picture in all essentials.

Leif Lundin (auditor director) had right of decision in this case. Annika Flygare (auditor director) was appointed to present the report.

Leif Lundin, Annika Flygare

Back row (from the left):
Gert Eriksson, Head of Small and medium-sized enterprises
Kerstin Bjellerup, Head of Compliance
Karin Apelman, Director General
Beatrice Arnesson, Head of Communications
Håkan Hindberg, Head of Finance

Front row (from the left):
Helén Seemann, Head of Large corporates
Hans Leijonhufvud, Head of IT
Anne Abrahamson, Head of Planning and International Cooperation
Gun Lidholm,  Head of HR