Nordic Investment Bank

SECTOR Supranational
RATINGS  AAA/Aaa
RATING OUTLOOK Both stable
PAID-IN CAPITAL (1 Aug 2020) €846M 
CALLABLE CAPITAL (1 Aug 2020) €7.5BN
FUNDING VOLUME 2019/20  €4.9BN/€7-8BN 
RISK WEIGHT, LCR LEVEL, SOLVENCY II  0%, Level 1, 0% 
REPO ELIGIBILITY 

ECB, BoE, US Fed, RBA, RBNZ

About Nordic Investment Bank

Nordic Investment Bank (NIB) is a multilateral financial institution that operates in accordance with commercially sound banking principles. The bank was founded by the five Nordic countries of Denmark, Finland, Iceland, Norway and Sweden. Membership was broadened at the beginning of 2005 when Estonia, Latvia and Lithuania joined as shareholders.

Operations are governed by an international agreement among the member countries and statutes pertaining thereto. NIB finances projects that improve the productivity and environment of the Nordic and Baltic countries.

SUSTAINABILITY OBJECTIVE OF GSS BOND PROGRAMME
Proceeds are used to finance projects that benefit the environment and support the transition to a low-carbon economy.

GSS BOND PROGRAMME Environmental Bonds, Blue Bonds, Response Bonds
REFERENCE TAXONOMY FOR THE USE OF PROCEEDS Issuer’s own definitions, aligned with the Green Bond Principles
FRAMEWORK WITH WHICH THE GSS BOND PROGRAMME IS ALIGNED Green Bond Principles and issuer’s own internal frameworks
EXTERNAL REVIEW PROVIDER  CICERO Shades of Green (dark green) 

PUBLIC ISSUER ESG RATINGS/SCORES

INSTITUTION RATING/SCORE
Various Currently being updated with results to be published in due course.
Sustainable funding strategy

NIB has an explicit environmental mandate from its owners to promote environmentally sustainable projects. The bank has its own Sustainability Policy, which will be updated in 2020. In December 2019, NIB became a signatory to the Principles for Responsible Investment for its treasury activities, a signatory to the Principles for Responsible Banking for its lending operations and a signatory to the Task Force on Climate-related Financial Disclosures.

In 2011, NIB introduced the NIB Environmental Bond Framework, which allows investors to provide funds for the bank’s environmental lending. Under this framework, NIB can issue Environmental Bonds and Blue Bonds. Blue Bonds specifically focus on investments within water-resource management and protection.

In response to the COVID-19 outbreak, NIB began to issue NIB Response Bonds under its NIB Response Bond Framework, the proceeds of which will be used to finance projects that alleviate the social and economic impact of the COVID-19 crisis.

FOR FURTHER INFORMATION PLEASE CONTACT:

Jens Hellerup
Senior Director, Head of Funding and Investor Relations
+358 9 6181 1401 • This email address is being protected from spambots. You need JavaScript enabled to view it.
www.nib.int 

NIB updates statutes

The owner countries of Nordic Investment Bank (NIB) have approved updated statutes, which came into effect in July 2020. NIB says the new statutes represent a significant overhaul of its capital-management approach and should allow for a more flexible approach to lending and better protection for bondholders.

Introducing the changes to investors and lending customers on 1 September, NIB’s Helsinki-based president and chief executive, Henrik Normann, acknowledged that the old statutes had grown out of date given the evolution of best practice in the banking sector since the financial crisis.

“The world has changed, and we have to change with the world – we have to stay relevant,” he commented. “Our previous statutes were quite primitive when it came to capital management.”

CHANGES IN DETAIL

Until the update, NIB used a basic leverage ratio for capital management. Björn Ordell, chief financial officer and head of treasury and finance at NIB in Helsinki, explained that this had two primary weaknesses. First, it failed to consider risk in capital allocation – instead treating all loans equally, regardless of risk. Second, it failed to capture NIB’s non-lending activities. These account for one-third of what the bank is doing, Ordell said, including all its treasury activities.

He added: “We have instituted in our new statutes what we believe is a modern framework for capital management. It is up to date and aligned with best banking practices.”

Specifically, this means a two-layer approach to capital. At the top is a new economic capital measure, which looks at all the bank’s activities – including treasury as well as the loan book – assesses their risk and requires an appropriate amount of capital to be set aside in relation to that risk.

The leverage ratio now has a backstop role and it has also been enhanced. Ordell explained that the updated version factors in all NIB’s activities and by doing so now meets Basel Committee standards.

At the same time, NIB has combined all its lending activities into one programme. Prior to the statute changes, its main book of ordinary loans was supplemented by two smaller programmes, which were supported by full or partial guarantees from owner countries. These guarantees have been converted into €1.8 billion (US$2.1 billion) of callable capital while the supplementary loans, totalling €364 million, have been folded into the main book (see chart). Further special reserves have been converted to paid-in capital, thus increasing support for the lending book as a whole.

The new statutes also include an enhanced focus on governance. Pointing out that governance “has been the biggest issue in banking since the financial crisis”, Normann explained that NIB has established a control committee in which the chairmanship is staffed by professionals from the financial sector. Meanwhile, political appointees oversee NIB’s relevance and mission.

BANK OUTCOME

As a whole, the statute changes are designed to make NIB more responsive to all its key stakeholders. Normann explained: “What we have tried to achieve is better balance between bondholders, shareholders and management in what the bank is doing. The keys are the right balance, appropriate limits, and checks and balances. We also need flexibility to maintain political relevance, to deliver what our members expect from us and to ensure that we are following the needs of our customers.”

The benefits to investors should be clear. Normann said the updated statutes will create “a more competent bank” that is required to follow best banking principles. It will also have enhanced transparency including annual updates on capital consumption and the link between capital use and strategy.

Nor is a more flexible risk policy a precursor to NIB taking on more risk. The guiding principle for risk under the new statutes is maintenance of the highest possible – triple-A – credit rating.

For instance, while NIB has also been given a mandate to conduct equity investment, doing so requires the vetoable support of all eight member countries and such investments require a 100% capital offset – in other words zero leverage. Normann said no such investments are immediately planned.

He did suggest that, at the margin, NIB might be willing to take on somewhat more risk in its environmental projects. Again, however, he pointed out that if it does so it will assign appropriate levels of capital to such investments.

Ordell added: “With these changes, we can definitely say member support for NIB has increased and its capital base has strengthened. This is of course very important for NIB, as more capital and greater resources give us the tools to be flexible in meeting demand – as well as giving investors stronger backing of callable and paid-in capital.”