6 Apr 2022

André Küüsvek to Ärileht: the Baltics and Finland are most affected by the current situation

This is a translation of an interview with NIB President & CEO André Küüsvek, that was published in Estonian news portal Ärileht (Delfi Business) on 31 March 2022, adjusted for NIB’s website. The article is originally written in Estonian by Delfi Business Editor-in-Chief Tanel Saarmann.

The President & CEO of the Nordic Investment Bank (NIB) André Küüsvek says the Bank intends to issue green loans amounting to tens of billions in the coming years.

The size of the loan portfolio of the Bank is more than EUR 22 billion, and the balance sheet total is EUR 40 billion. The Bank belongs to eight countries, including Estonia. Estonian André Küüsvek became the President & CEO of the Bank on 1 April last year. His first assignment was to review the Bank’s strategy. Some important clauses were added to the strategy, which provide opportunities for Estonian companies and even apartment associations.

NIB has played an important role in supporting the economy during the pandemic.

“Broadly speaking, we have given out EUR 2 billion for response loans in relation to COVID-19. These loans were also given to the three Baltic states. Our reaction has been quicker than that of other banks. A good example is our response loan to Tallink. In Denmark, we also helped Demant, a global market leader manufacturing hearing aids. Elderly people lacked the opportunity to visit clinics during the pandemic, and they couldn’t purchase the device online either,” says André Küüsvek.

You mentioned that some countries received a loan more quickly than others. What does that mean?

“We have to be responsible as a bank. I dare to say that our Bank is one of the quickest and least bureaucratic financial institutions. The countries’ loans were confirmed within 2.5 weeks. I will quote one member of our Board who is a native of a Baltic state: ‘We applied for a loan from three banks. NIB loan was paid out within four weeks; the others took two and four months respectively.’ We showed we could respond quickly if the owner countries needed us to.”

How has the Bank’s loan strategy changed recently?

“NIB was one of the first banks to prioritise environmental protection. Already eleven years ago, we also started to issue environmental bonds, which means that we financed ourselves through the capital market and used money for green projects. We have also issued blue bonds, which are used to improve the aquatic environment.”

“Supporting the competitiveness of our region has been one of the most important goals from the start. This has to do with two main aspects: increasing productivity as well as fighting and managing the climate change.”

“It became clear to me in my new position that we had to renew our strategy. The things I’ve mentioned remained in place, but we changed several aspects. We had to take the climate change priorities of the eight member states into account.”

“However, we are not influenced by any country. We must choose a wider perspective than only the governments of our countries to provide an anchor for stability. We focus on medium-sized enterprises and the private sector.”

You did not provide a service for them previously? Does that give hope to our companies as well?

“There are many municipal projects and large enterprises in our loan portfolio, especially from Sweden and Finland. We need to bring in more medium-sized enterprises, which are the big companies in Estonia. We do realise that we need to take a few more risks. The supervisory board has confirmed this. This means we can come down a few steps regarding clients’ credit ratings.”

“Part of our portfolio is comprised of sustainability-linked loans related to environmental sustainability, which have clear parameters that must be achieved. If the parameters are followed, the loan will be more favourable. However, the loan would be more expensive if the targets are not met. I’ve just signed a similar loan agreement with a Norwegian biochemistry company. It’s a very clear product that will motivate the client to be more environmentally friendly.”

What factors determine the amount of loans provided for one country?

“NIB has no quota system. We don’t follow the what you give is what you get principle. We’re driven by demand and good projects. The Baltic states make up about 13% of our loan portfolio and 4.2% of our share capital. This is a clear indication that there have been three times as many payments in the form of loans. I’d like to give out more loans in the Baltics. This would be possible if we gave out loans to private companies and medium-sized enterprises. We will invest our resources in this.”

How do clients reach you?

“We don’t just sit in Helsinki waiting for the phone to ring. We search for projects to invest in. We have bankers who focus on specific countries and sectors. At the same time, we’re also delighted when people we’re unable to find ourselves reach out to us.”

It seems to me that the real estate sector is becoming increasingly important for you.

“This currently makes up 7% of the portfolio. For us, real estate is related to the green aspect. These are projects that increase the efficiency of energy use and reduce the environmental footprint. Up till now, our focus has been on real estate associated with science, education, and the social sphere. Recently, I visited the research cluster of Lund University, which we funded, along with laboratories, clinics and hospitals.”

“We’re willing to build schools. There’s a need to build more social buildings because of the refugee crisis. Renovating is also very important to reduce energy spending on heating and cooling. We’re preparing a pilot project with the Lithuanians to finance apartment associations.”

Energy efficiency is a hot topic. Europe will provide a lot of money for it.

“We’ve been doing this a lot in the Nordic countries. These countries are far ahead of the Baltic countries in terms of green buildings. We sincerely hope we can implement these projects in the Baltics as well. But we can’t do this alone, because we need to communicate with apartment associations and residents. We need to establish a system that engages local banks and maybe even KredExit. The projects that will get a loan from us start from EUR 30 million, of which we compensate up to half. We need someone to divide a larger amount into smaller amounts.”

Don’t fossil companies receive anything from you nowadays? Gas was considered green until recently.

“The economy and politics go hand in hand. The European Union’s decision came into force before the geopolitical situation changed considerably. It has an entirely different meaning today. NIB has clear rules concerning how not to act. This includes fossil fuels and gas.”

“However, we must now consider security of supply and energy independence. We’ve invested in the LNG terminal in Klaipėda. Back in the day there was a hot discussion in the Bank. LNG is a fossil fuel as well. At the same time, it helped Lithuania and other Baltic countries to decrease dependence on Russian gas.”

Will the green turn be postponed, or will it be initiated more quickly?   

”There will be no significant changes in terms of climate change in the long run. The short-term question is how to survive. I fully understand this as a person and bank manager. It would be very unpleasant to lose heating. This must be resolved. Everyone must review their energy sources in the long run and think about energy distribution. We gave Enefit Green a loan of EUR 80 million for 12 years. Another example is the Ignitis wind farm project, which will be established in Poland. We also have a lot of operations in the Nordic countries.”

“For example, if we look at LNG, the efficiency of which needs to be increased rapidly, we’re willing to consider these projects if member states need help.“

“Transmission lines are also important for us. We’ve worked on both Estlink 1 and 2. We’re financing Viking Link, which delivers electricity to Great Britain. Why do we deliver energy outwards? We need to have a better connection to find the best possible efficiency. We’re part of the market. NordPool is only a small region. We also need to think about energy storage. We’ve extented a loan to continental Europe’s largest car battery factory in Sweden. There are more projects.”

“Fourthly, there are fields which demonstrate a serious problem for CO2 emissions – the building materials industry, for example, and cement to be more precise. And the engineering industry too. Difficult fields must transform from brown to green. The war in Ukraine is a trigger and accelerator for the green turn.”

Would you invest in a nuclear plant?

“This is a difficult topic for international organisations since views differ between countries. Assembling our sustainability strategy took a long time. We arrived at a point where nuclear energy isn’t excluded, but I’m deliberately very cautious about this. It’s very unlikely we’ll be financing a new nuclear plant. At the same time, questions about nuclear plant safety might be on the table.”

Hydrogen solutions are on the way but are not yet ready. This is definitely an option for the future.

“I completely agree. We are actively looking at particular projects at the moment. There are currently no projects in the portfolio, but we are willing to take a risk with several clients in the field of science and development to expand such projects. Technology will develop faster than we dare to expect.”

How does the war in Ukraine affect the NIB?

“The war in Ukraine has directly affected us. We had already reviewed our cybersecurity before 24 February. Our sister organisation NEFCO has a lot of loans in Ukraine.”

“We reviewed the risks of our portfolio as the war escalated. Our loans in Russia and Belarus are less than EUR 10 million. This is a microscopic part of EUR 22.3 billion. We haven’t issued any loans in Ukraine. Russia has had one loan since 2005, and Belarus has one relatively old loan. Both were provided to protect the Baltic Sea. One was given to finance the flood barrier in St Petersburg. The other was provided for water treatment plants in Grodno and Brest. The direct risk is marginal. We have explained this to the rating agencies.”

“We do have some impact through the companies we have given loans to – Lithuanian Railways, or a port, for example, as well as a Finnish energy company with subsidiaries in Russia. There is also influence via macroeconomics and financial markets.”

“We’re ready to help Ukraine and nearby countries, including the Baltic states and Poland. We’re also talking about Slovakia, Romania and Bulgaria.”

How do the sanctions affect you?

“We’re helping our clients, and we’re trying to receive feedback from them. The Bank has a compliance department. This is a daily topic in the top management. There are many questions – for example, through which banks are transfers allowed, and which banks are prohibited?”

“Rating agencies may lower the credit rating of some of our clients, but we don’t see anyone having difficulties with repayments. Direct credit risk is not the greatest problem for us.”

What is the economic forecast for NIB? Making forecasts is unpopular…

“I agree. Forecasts are necessary. They may not always be accurate, but we can have a look at the trends. Estonia, Latvia, Lithuania and Finland are most affected by the situation. I read the Estonian, Finnish and international newspapers and tend to agree with the pessimistic analysts. Everything that has happened on the capital, bond and stock markets will be reflected in the real economy and real estate.”

“At the same time, the capability of central banks to perform crisis management is somewhat limited. This has been done for 12 or 13 years already. Interest rates will start to increase. Norway, Great Britain, and USA have already raised them. They’re signalling that interest rates will rise even more. I’m more cautious about the European Central Bank and the euro area. Countries hold different positions.”

What will the coming years bring? How many countries and companies are you supporting?

“We want to pay out at least three billion euros each year. I’d prefer to see a larger volume of projects to choose from. Many projects have been postponed due to COVID. These projects have to happen one day. I expressed the wish at the Glasgow Climate Conference to participate in the co-financing of projects worth at least EUR 30 billion by 2030.”

Loans in Estonia

EUR 1.5 billion in 16 years

NIB has invested in more than 2,200 projects worth a total of EUR 65 billion in the last 45 years. The Baltic states joined the Bank in 2005. The region has since received loans worth a total of EUR 4.3 billion. Estonia has received EUR 1.5 billion.

Loan projects in Estonia include Enefit Green AS, Tartu University Clinic, Ida-Viru Central Hospital, the North Estonia Medical Centre, and on several occasions, Tallinna Vesi. Loans have previously been given to Tallinn Airport and Estlink 1 and 2.

COVID-19 response loans were given to Estonia to an amount of EUR 750 million, as well as EUR 500 million to Latvia and EUR 400 million to Lithuania.