Head of Treasury: NIB keeps delivering what investors value the most

How did NIB’s funding perform in 2012 and what can we expect in 2013? Is NIB paper still a ‘safe haven’ product? Lars Eibeholm, Vice-President and Head of Treasury, explains all to NIB Newsletter.

Demand was good and the Bank’s funding continued to benefit from the highest possible credit rating and financial stability in the Nordic region. NIB raised EUR 4.3 billion in new funding during last year.

NIB issued two global five-year benchmarks last year. The 2017 1% USD 1.25 billion global benchmark was issued in January, traditionally a time of high issuance activity by International Financial Institutions (also called Supranationals); towards the end of the year in November, the USD 1 billion 0.75%, already with a 2018 maturity, was placed.

“Both benchmarks were well received by NIB’s investor base around the globe. Investors value the stability and rarity of the NIB name and regard the bonds as something of a safe haven investment in volatile capital markets,” Mr Eibeholm explains.

“NIB’s 2018 benchmark bond achieved the tightest spread in the Bank’s history over the US Treasury’s. Investors were still rewarded with performance in the secondary market,” Mr Eibeholm continues.

NIB’s funding costs remained stable throughout the year, which reflects the low headline risk the market attaches to NIB and the Nordic region. During the latter part of the year, spreads within the Sovereign Supra and Agency sector started to converge on tighter levels as the market profited from support and measures taken by the European Central Bank.

“For us, it meant that the flight to quality in the Nordic region, which appeared to be our advantage during the crisis, gave way to more competition,” Mr Eibeholm admits.

What is the outlook for 2013?

In 2012 there was a strong commitment to solving the problems in the euro area and this should help the market to regain confidence in 2013. However, the political debate may still affect the sentiment and feed new worries about the stability of the euro area. In this context, Mr Eibeholm sees NIB’s position as unaffected.

“Instability has so far been our relative ‘friend’, and NIB has been a ‘safe haven’ for many investors.”

“I don’t see any reason for this to change in the foreseeable future. The political risk may certainly have an impact on sovereign spreads, but NIB has not been affected so far and is unlikely to be affected by the political risk further on,” he explains

NIB funding in 2013: instrument products, investors

The funding plan for 2013 is EUR 4.5 billion, which is about the same size as in the previous year. Mr Eibeholm outlines the funding strategy:

“NIB will stick to its global USD benchmark strategy and continue to target key investors such as central banks, asset managers, pension funds and insurance companies.”

“Further, we will diversify in various currencies like New Zealand dollars, Australian dollars and Nordic currencies and look into different emerging market currencies, such as the Mexican peso, South African rand and Turkish lira.”

The USD benchmark programme is the most important cornerstone in the funding plan as it enables the Bank to raise cost-efficient funding while also accessing a very broad investor base in a market where NIB’s peers are also active.

Although the structure of NIB’s investors remains largely unchanged, the share of liquidity portfolios of commercial banks increased markedly in 2012. Mr Eibeholm thinks this trend will persist this year.

“It’s related to the Basel III rules which demand that banks need more liquidity and better quality. NIB can provide the best-quality liquidity,” he says.

“Banks’ liquidity portfolios need to be in compliance with regulatory requirements, and here low price volatility and low credit risk are important attributes which can all be offered by NIB’s high-quality bonds.”

“Safety, stability and the highest possible credit rating are what NIB’s investors seek when buying the Bank’s securities and what we’ll keep delivering,” concludes Mr Eibeholm.