14 Apr 2022
André Küüsvek on the war, economic situation, green transition and NIB’s role – interview with Äripäev
This is a translation of an interview with NIB President & CEO André Küüsvek, that was published in Estonian business news portal Äripäev on 6 April 2022, adjusted for NIB’s website. The interview was given in Estonian to a business journalist Janno Riispapp at the Nordic Real Estate Forum in Tallinn on 31 March 2022.
André Küüsvek, President and CEO of the Nordic Investment Bank, acknowledges that due to the war borrowing will become more expensive for companies with portfolios containing greater exposure to Russia, Belarus, and Ukraine. “Banks tend to react when risks increase. For geopolitical reasons, they have clearly increased, there is no question about it,” he said in a recent interview with Äripäev.
André Küüsvek also looked back on the five years he served in Kyiv as the Country Director at the European Bank for Reconstruction and Development (EBRD) in Ukraine, and helped the country in its fight against corruption. He also gave an assessment of the prospects for the economies of Estonia and the Nordic countries, and spoke about the investment plans of NIB.
How has the war in Ukraine influenced your work?
“The war has affected us all. NIB has resolutely condemned the war and we have suspended our activities in Russia and Belarus. In particular, the war is affecting our business through a macroeconomic effect, which we see having a greater impact in the Baltic States and Finland, as they have borders as well as closer trade and economic relations with Russia. Sweden, Norway, Denmark, and Iceland are slightly less affected.”
“The macro effect is an important aspect of how the war affects the economic growth rate of states. Certainly, this is affecting us through the financial markets – stock and bond prices are reacting to the news and to the increased risks, having today adjusted a great deal, and presently they are exhibiting significant volatility.”
“Our work is least affected by the specific risks that we have taken in the region. We do not have any Ukrainian loans in our portfolio. We have one loan outstanding in Russia since 2005, with the remaining repayment of EUR 1.2 million. There is also one loan in Belarus – a little over EUR 8 million of direct risk. It was granted in 2012 to upgrade sewage treatment plants in Brest and Grodna in order to improve the cleanliness of the water in the rivers flowing into the Baltic Sea. Compared to our total balance sheet of EUR 40 billion, this sum of slightly less than EUR 10 million is almost nothing compared to everything else this war has caused.”
The main objectives of the Nordic Investment Bank are to strengthen the competitiveness of the Nordic and Baltic region and increase business productivity, as well as to develop the green economy and resolve climate-related challenges. Have these objectives changed from the short-term perspective because of the war?
“The objectives have certainly not changed; instead, the green transition is more important than ever. As the President of Finland [Sauli Niinistö] said, the masks have dropped and to continue hoping that we will receive energy supplies from the East is not a good long-term plan in terms of energy security.”
“I think that it will speed up the green transition, not slow it down, and the need for investment is very high. The question now is whether these investments are possible in today’s risk environment and who will make them. On behalf of NIB, I would argue that our mission and our role have grown because of it. We would like to selectively find clients who are willing to risk their money and support them with long-term loans to encourage these investments.”
“We have financed several projects that are important for energy security: for example, the power cables Estlink 1 and Estlink 2 between Estonia and Finland, and the LNG terminal in Klaipeda are projects financed by us. Such connections are of critical importance and we can see that Lithuania’s dependence on Russian gas is significantly lower thanks to the LNG terminal. The share of Russian gas in Lithuania is currently 41 per cent of gas consumption, while in Latvia, for example, it is 93 per cent (the interview was given before the Baltic States’ decision to stop Russian gas imports – ed.). Of course, additional investments of this type are needed. Where exactly they will go – Finland or Estonia – is another question.”
“In the long-term the green transition has taken on an ever clearer meaning, and there is no need to argue about the reasons behind it. For example, we recently signed a EUR 80 million loan with Enefit Green to build wind farms in Estonia, which have not been built for years. We have also financed the construction of wind farms by Ignitis, a Lithuanian energy company, on the territory of Poland, and we are also ready to look at other projects.”
What do you think about the prospects for the Estonian and Nordic economies and what do you see as the biggest risks to economic growth?
“In the short-term, the sanctions specifically imposed on Russia and Belarus have the biggest impact on risks. Looking a little bit more narrowly at the Nordic countries and the Baltic region, the economic impact is certainly greater on the Baltic States and to a certain extent Finland. There are a significant number of Finnish investments in Russia. It is also very unclear what can and cannot be done at the moment – what payments are moving, what currencies can be used for payments, not to mention if payments can be made at all. This uncertainty also means that it is optimistic to now expect investments or tourists to come to this region in greater numbers.”
André Küüsvek started his career in banking in 1992 at Tartu Kommertspank (Tartu Commercial Bank) and Tallinna Pank (Bank of Tallinn), where he was responsible for international transactions. He then moved to Germany, working for the private bank Schröder, Münchmeyer Hengst, & Co., and for Dresdner Bank AG until 1996.
André Küüsvek has sat on the supervisory boards of more than 30 institutions, including banks and insurance companies, as well as aviation and railway companies.
In 1996, he started working at the European Bank for Reconstruction and Development (EBRD), where he developed the investment and loan activities of Central and East European and CIS countries. In 2004, he was appointed Country Director of EBRD activities in Kazakhstan, and in 2008 he was transferred to Ukraine. He served as the managing director for Central Asia from February 2020 until the end of March of last year.
The new President and CEO of the Nordic Investment Bank has a Master’s level degree from Tallinn University of Technology and has also studied in Sweden, Germany, Finland, and Hungary. Küüsvek is also a graduate of the Estonian Business School and Stockholm School of Economics. Küüsvek is fluent in five languages.
On 1 April 2021, he took up the position of President and CEO of the Nordic Investment Bank.
Have the Nordic Countries in any way reassessed the threat level in the region due to the war? We hear that some foreign banks have made it more expensive for businesses to get a loan.
“Banks tend to react when risks increase. And they have clearly increased for geopolitical reasons, there is no question about that.”
“I would say yes. I can see that, in fact, because of this changed geopolitical situation, companies will now have to write off some investments. I can also see that the cost of credit will change because of the downgrading of credit ratings, not for all companies, but for those that have a greater exposure to Russia, Belarus or Ukraine in their portfolio.”
In the context of the changed security situation is the investment climate of the Baltic States more secure from the perspective of the finance sector than, for example, that of Finland and Sweden, who are not members of NATO?
“I am not qualified to make that conclusion. I would rather say that today NATO membership is clearly the security anchor in the Baltic region. The events of the last month and week have led to a greater readiness and presence on the part of NATO.”
“Finland and Sweden are two countries that cooperate extensively with NATO in one way or another, and they were also invited to the last summit. I am certainly not competent to say whether and how they might at some point think about joining, but these discussions are taking place in society.”
You have been closely connected with Ukraine for five years, in 2008–2013 you served as the Country Director for the European Bank of Reconstruction and Development (EBRD) there. How has that country developed in your opinion?
“I lived in Kyiv for five years, and did indeed serve as the Country Director for EBRD investments there, which were quite large; the size of the investment portfolio was about EUR 5 billion. Perhaps ironically, the time I spent there was sandwiched between two ‘Maidans’. I moved there in 2008 and left in 2013, and during that time I saw three very different presidents and how different reforms were attempted in one way or another – some succeeded and very many did not.”
“I’ve been following the situation from afar now, and in the last eight years since the occupation of Crimea, national pride has emerged in Ukraine much more strongly than before. People know their identity and are proud of it. They are ready to defend their country even in conditions of war, risking their lives to do so.”
“Ukraine has been a democratic country all of that time, both when I was there and after I left.”
“Unfortunately, this does not mean that everything goes right. Corruption has continued to be the biggest problem in the country for decades, and it needs to be addressed. I was involved in investment management there and, in a sense, also in political dialogue for carrying out reforms. Among other things, I initiated the creation of the role of ombudsman as a neutral arbiter at the Presidential Administration of Ukraine in the fight against corruption.”
“Its first leader was a former European Commissioner from Lithuania. This office is still operating today and it is specifically dedicated to fighting against manifestations of corruption. Excessive bureaucracy is, unfortunately, often a breeding ground for corruption.”
“As the Country Director for the EBRD, I – as a relatively influential foreign investor – was approached to help solve certain problems, something that the Ombudsman’s office is now dealing with.”
The idea of creating a ‘Marshall Plan’ to rebuild war-torn Ukraine has been proposed. How could this be done and would the Nordic Investment Bank be interested in helping Ukraine in this way?
“It is clear that reconstruction must take place, but before we reach that step we need to think about how the war can be brought to an end. When we arrive there, I think there has to be a clear international joint effort to achieve that goal. Questions will arise about how to finance the reconstruction, with what forces and with what money it should be done.”
“The main focus should be on infrastructure, by which I mean not only transport, but also all municipal and social services, including schools, hospitals, etc., as well as housing stock.”
“It is necessary to have political agreements and the support of countries to coordinate that.”
“NIB does not currently have any projects in Ukraine, but our sister organisation, the Nordic Environment Finance Corporation (NEFCO), does. Ukraine comprises quite a large portion of their portfolio, about two-thirds. This includes several projects connected with infrastructure and environmental investments.”
For a decade, the euro area has been operating in an environment of negative interest rates. Should the European Central Bank continue its asset purchase programme and keep interest rates negative because of the war, or should it rather draw the line when it comes to money printing at the end of the year, as has been suggested in the past?
“That will be decided by the monetary policy department of the European Central Bank and the governors of the central banks of the euro area; I would rather not put myself in that role. But we can look at what is important for them in making that decision. One aspect is certainly inflation, because at the end of the day the role of central banks is still price stability. Inflation coming out of the corona crisis was already quite high, and on top of that there has been a geopolitical shock where the supply chains have been hit even harder than they were during the corona crisis.”
“This has brought along additional pressure to increase prices – and not only in the energy sector, where prices have already been volatile for the past two years. Ukraine has been called Europe’s bread basket, and together with Russia the two countries account for about a quarter of the world’s total grain exports. Ukraine is also a very large exporter of maize, meaning that food prices are expected to go even higher.”
“At the same time, the prices of metals, from steel and iron ore, have increased, as have the prices of various rare metals, which are mainly components of microchips produced in Asia. The whole supply chain has been hit hard.”
“When we look at the big inflation numbers, and people at the central banks certainly are, there is certainly a reason to sit down to achieve price stability.”
Should the money printing be stopped this year to ensure price stability?
“I have not said that. In the longer perspective, I think there is definitely a trend to turn back towards positive interest rates. The question is if it can be done now. It depends on what kind of shock the economy gets. It is no coincidence that we are living with negative interest rates at the moment, and there have been different reasons for that. It is up to the central bankers to look at these crises now, to determine how big the risks are and how to start gradually digging themselves out of negative interest rates. It is certainly a complicated process also in terms of political compromises.”
Which economic indicators do you, or the Nordic Investment Bank, consider the most important for predicting a crisis? Some look at the volatility index, others at the price of gold or the unemployment rate. Which indicators are the most important?
“We look at a combination of all of them. In the end, it is economic growth that creates added value, and in the long term that is perhaps the most important.”
“Those other elements you mentioned are certainly also important. Consumer confidence is very important, as well as the whole economic situation: how and in which region investments can be attracted – and by investment I don’t mean investments only in terms of money, but know-how and knowledge-based investment, which is the strength of the Nordic countries, for example.”
“It is rather pointless to take these components apart one by one.”
“Under the conditions of coronavirus, investing was somewhat limited during the last two years, even though there was a very large mass of money in the economy. Once we began to exit the crisis, investments started to go up little by little and we saw an increase in demand for credit; however, the risks right now are higher again, and I think the weakening of consumer confidence will slow down investments for a while now.”
How do you view the loan and real estate boom in Estonia? For example, would the Nordic Investment Bank currently finance the development of housing stock in Tallinn?
“The fact that I am here today (31 March – ed.), at the Nordic Real Estate Forum, in Tallinn, is a clear sign that we continue to be interested in finding new projects and clients.”
“We have a new strategy from December, which was made after I joined the bank. We are trying to broaden our offering to different customer groups, which are generally riskier by their nature. We have created new products, such as loans connected with sustainability and the environment, where the loan margin becomes cheaper for the company if it meets certain criteria – usually these are carbon emissions or resource use, water, energy, etc.”
“If they are not met, the loan margin will rise, i.e. there is such a motivation element built into the loan conditions with the help of loan interest.”
“In real estate, we are relatively well represented, with the real estate sector covering 7 per cent of our total portfolio and as much as 10 per cent of last year’s loan disbursements. There are many public buildings, office buildings and also a little bit of housing stock.”
“We are also looking at an innovative project in Lithuania, in cooperation with apartment associations. If it gets off the ground, we would be happy to copy it, for example, in Estonia and Latvia.”
What is this thing that could be copied in Estonia and Latvia?
“It is a little early to say. We are trying to do something first and then talk about it later.”
“It is a structure where our loan would go to the apartment associations. The question is what are the possible guarantees to reduce the risk; in Estonia’s case, for example, KredEx, which has guaranteed renovation projects for apartment associations, could be involved in the project. The more we can minimise the risk, the more favourable the price of the loan.”
“I think new developments are also effective in involving commercial banks; the target of our loans are primarily renovation projects. The housing stock has aged quite a lot over the years, renovation would bring huge environmental and energy savings. We are trying to focus on this.”
So, the Nordic Investment Bank will not compete on the rental housing market?
About investing. Which sector is more attractive, green shares or bank shares?
“This is like comparing children, you have to love them all equally.”
“I do not give investment advice, but personally I can say that I have been willing to take equity risks all the time, and I continue to believe that equity risks pay off in the long run.”
“The green economy is certainly something that will grow significantly. The role of banks, both in crises and in regard to regulations, has become more complex. Without wanting to choose between these two, I would say that both are important. No economy can do without banks.”
What was the last work-related decision that made you proud and that you believe will have a major and tangible impact?
“I am quite proud of the strategy of NIB and the process that accompanied it, that we were able to adapt to the changes of the external environment and to draft a new strategy that received the support of the Board composed of representatives of the member states. We managed to preserve a great deal of confidence throughout the whole process, and that is certainly something I am very pleased about.”
“Coming down from the higher level, I am also happy that we were able to put in place a system of performance appraisals and development reviews in the Bank.”
You have lived outside of Estonia for 26 years. When will you return home?
“I’ve been at home all the time. I remember when I moved to London in 1996, at one event an elderly Estonian lady who had been living abroad came up to me and asked: ‘Are you also a diaspora Estonian?’ I wasn’t prepared for that question and said, ‘No, I am a native Estonian.’ For all 27 years that I have lived abroad, I have considered myself a native Estonian.”
“I have always had connections with Estonia, I have brought my children here. Two of my three children have now come to live here on their own initiative.”
“In that sense, I have never left Estonia.”
Read the original article in Estonian on Äripäev.