Promoting Increased Productivity in Member States
Following is the translation of an interview with NIB (Nordic Investment Bank) President and CEO André Küüsvek, published in Morgunblaðið September 1. The article was written by Morgunblaðið journalist Stefán Einar Stefánsson. The translation, done by NIB and published on its website, is being published here with NIB's permission.
Dull weather seems to have taken hold of Reykjavik as I jump over the Hverfisgata and step into one of the hotels that have survived the pandemic. The breakfast room is buzzing with life. Foreign tourists in every corner may be a testament to a life soon to return to normal. But the group I am about to meet are not only here to enjoy their leisure time. Key employees of the Nordic Investment Bank are visiting to familiarise themselves with the state of the economy and meet with their clients.
Their visit is momentous in that it is the first time André Küüsvek, CEO of the Nordic Investment Bank (NIB), has come to Iceland since taking office in April. His appointment marked a turning point in the bank’s business. Never before had a CEO been recruited from one of the Baltic states which joined the bank in 2005.
When I ask Küüsvek to describe where he came from, I soon realise that he was born into a world different from the one we know today.
“I was born and bred the Estonian capital of Tallinn. For a start, my youth and schooldays were largely shaped by the fact that we inhabited a different political reality to the one we know today. Like many of my countrymen, I firmly believed that our nation had a different and better future than that the yoke imposed on us by the Soviets.”
He says that despite the state of world when he was growing up, he was one of the fortunate ones given the opportunity to learn about the world west of the Iron Curtain.
“Towards the end of the 1980s, I was presented with a unique opportunity to travel abroad and get an education outside Estonia, which broadened my horizons. I visited the Nordics – Finland and Sweden – among other countries. Then I studied in Hungary and wrote my final thesis in Germany, even though I was actually on the east side of the wall – in Dresden. My travels next took me to Stockholm, where I studied for a master’s degree.”
Küüsvek studied banking and finance at the Stockholm School of Economics. As the Soviet Union disintegrated and Estonia gained independence, Küüsvek became one of the first employees of a new banking system that allowed the private sector to step into an area where state power had been all-encompassing.
“Many people got in on the act. Not because they had been planning to, but because they simply felt an urgent need to do so. I was one of them.”
Within a few years, he joined the European Bank for Reconstruction and Development (EBRD), and the dice was irrevocably cast.
“I spent more than a quarter of a century working in this field, much longer than I had initially planned. It gave me many opportunities, including moving to eight different countries and working in eight different cities. I reckon I was involved in investment and lending activities in over 40 countries during this period.”
When you look at Küüsvek’s CV, it becomes clear that he held a variety of posts at the EBRD. For instance, as the bank’s director for Kazakhstan and Ukraine, and, finally, for Central Asia.
After a successful career, destiny took over and, following a long and rigorous recruitment process, Küüsvek was selected by the Board of the Nordic Investment Bank to take over from Henrik Normann, a Dane who had retired after serving as CEO from 2012.
Küüsvek says he is pleased to have taken on the job at the NIB because the bank is similar to the EBRD in many ways. Therefore, it is only right that I should ask him how he defines the role of institutions such as those two he has become so familiar with.“International financial institutions, such as the NIB and the EBRD, have very clear roles and objectives. The institutions are different, but what they have in common is clarity. For example, the role of the NIB is to promote increased productivity and support projects likely to increase prosperity in the member states. In a broader sense, we might say, with bank’s original mission in mind, that the bank plays the role of ensuring the competitiveness of the Nordic countries and, by extension, that of the Baltic States. But there is also an emphasis on sustainability, environmental protection, and fighting climate change.”
He mentions environmental protection and climate change. One wonders whether the bank’s policy and goals change with the currents of time or whether they have remained the same since 1975, the year of the bank’s establishment.
“Of course, I don’t know the history, other than that related to me by those who preceded me, but my understanding is that policy will change organically. The emphasis on environmental issues has steadily increased as more and more people are realising their importance. On the other hand, the NIB is supposed to provide long-term stability in the financial market. Politics runs its course, and, in elections, there can always be a change of emphasis. Despite that, the NIB can provide predictability and stability. This can be seen, for example, in how we secure funding for specific projects in the long run, for over three decades in many cases.”
Küüsvek points out that stability is not always achieved by inhibiting change. The NIB was the first to issue green bonds about a decade ago. Nowadays, there is an increased emphasis on blue bonds, i.e. funding provided for projects to promote the development of the world’s marine waters.
The bank can be a true driving force. Its balance sheet is about EUR 38 billion (equivalent to ISK 5,700 billion) and its outstanding loans to customers stand at EUR 22 billion (equivalent to ISK 3,300 billion).
“Although its operations are deployed far and wide, the bank employs only around 230 staff. It is relatively small compared to institutions of a similar size and type. We believe that this is a sign of efficiency and skilled management.”
Küüsvek says the bank is not interested in expanding its balance sheet. The determining factor for business is whether and where there is need for it.
“Growth is not an end in itself. What matters is the impact we can have and whether we can make a difference to the economies of NIB’s member states. We want to be where we are needed. This has led to an expansion of the balance sheet, e.g. to combat the coronavirus epidemic. We provide special loans to both states and individual companies – called Covid-response loans – to help them over the toughest of hurdles.”
In this regard, Küüsvek refers to the Baltic States, which applied for funding from the NIB in response to an urgent problem that arose last year. Estonia received EUR 750 million, Latvia EUR 500 million, and Lithuania EUR 400 million. The bank also responded to and supported companies that experienced major and unexpected revenue declines, such as Tallink Silja, which carries passengers across the Baltic Sea, and Demant, a Danish company that is a world leader in the development and design hearing aids.
“These companies needed to know we would respond quickly, as no one knew how the epidemic would develop or what effects it would have. Countries needed capital, as did companies, which suddenly saw their revenue flows dry up. These were not long-term loans, and we will reassess the situation when we talk to our borrowers, as we routinely do. The capital is there, but if it is no longer needed, we are not worried about loans being repaid. We will then provide funding to other urgent projects.”
Küüsvek says that the coronavirus crisis has not hit the economy as hard as people initially feared.
“This is not least thanks to the response from governments and, in particular, central banks. We made provisions in our accounts last year because of the situation, just as commercial banks did. I have met, for example, with the management of Íslandsbanki and Landsbankinn. They told me that they recognised a considerable sum in their depreciation accounts last year, that the trend is reversing, and that it has resulted in increased profits. You could tell a similar story about us, too.”
Can this picture be painted in most member states?
“The situation is similar in most places, in Europe and worldwide. In countries whose governments have had the opportunity to support their economies, the impact has been less pronounced. I have talked, among other people, to Ásgeir Jónsson, Governor of the Central Bank of Iceland, about the situation and the Central Bank’s response of lowering interest rates and applying other instruments. If this had been a conventional crisis, a major price correction would have been expected in the property market, for example. That was not the case. This is because the capital is ready and waiting and, if anything, the demand for housing has increased during the period. Interest rates are low, the stock market is small and, of course, considered riskier than e.g. investment in housing. But the economy seems strong”. Küüsvek simply gestures to the window and the bustling human life and traffic along the Hverfisgata as testament to his words.
Are you optimistic about the coming months and, say, the next 5 years in regard to the economy?
“I’d rather not predict. However, I can say that I am optimistic about the NIB. We are in a good position. The bank is very well-funded and in a good position to address the tasks ahead. As far as the big issues are concerned, I am most concerned about cutting concessions in the financial markets, because low and even negative interest rates have been used to fight declining demand. How are governments and central banks going to extract themselves from this situation and bring the policy rate to a healthier level?”
Do they have a way of doing that?
“There are ways to do it, but most are painful. When an interest-rate hikes happen, it has a major impact on the bond market and even if you do not own bonds, I am sure your pension fund does.”
Küüsvek also makes no secret of the fact that addressing climate change presents a major challenge. Indeed, there is no mistaking the more serious tone in his voice as the conversation turns in that direction than when discussing the coronavirus pandemic.
“The events of past months and years testify to the importance of responding but doing so is very costly. Developing a new technology costs a lot and takes time, and it is difficult to calculate accurately. You have to invest in things that either do not pay off immediately or that take a very long time to pay off. The NIB is trying to play the role of anchor. We are placing greater emphasis on the green economy and fighting climate change.”
At this point, the conversation turned to the NIB’s activities in Iceland and projects Küüsvek has been involved in or supported. The most obvious question to ask him is which companies have worked with the Bank in recent years.
In its history, the NIB has provided funding worth EUR 63 billion for approx. 2,200 projects. Some of that funding was granted to returning customers, based on long and successful collaborations, but there are many such customers. In Iceland, the bank has provided loans amounting to EUR 2.3 billion. It doesn’t sound like much in the overall context but, if you look at the figure in the context of the size of the Icelandic economy and population, then Iceland’s share is significant. Instead of being guided by quotas when it comes to choosing projects, we come in where we are needed.”
He points out that NIB has been involved in financing large energy development projects, such as those for Landsvirkjun (The National Power Company of Iceland) and Orkuveita Reykjavíkur, an Icelandic energy and utility company. The bank is also the creditor of Össur, a support device company.
“This is a very good example of a company that has enjoyed our support. It was small but has grown large and become a world leader in its field. Össur is an example of a company that has created tremendous value.”
Küüsvek then names more examples relevant to the Bank’s other projects outside of Iceland.
“As soon as we landed in Keflavík, we met with Isavia’s representatives. We have been involved in financing the construction of the airport. It is admirable to see how the epidemic was dealt with and how everything was done to secure the company’s liquidity so that it could weather the surge of the wave. But at the same time, the company has also looked ahead, continuing to build and expand the terminal, which will allow it to create value when the tourism industry gets into gear again.”
Küüsvek points out that the NIB has considerable experience in working with airport-operating companies. For example, the bank financed the development of Copenhagen’s Kastrup and Helsinki’s international airport.
“It is a privilege for us to work with companies like these. They face similar challenges, only in different markets. We have gained a great deal of knowledge and experience from our projects with them and have become advisers to our customers in the process. We have insights that could be useful to Keflavík, for example. In these projects, we provided advice, for instance, on KPI-based lending, where we looked, not only at the sums borrowed, but also at the borrower’s success both in utilising the capital and in his operations. Such measures affect interest rates, both upwards and downwards. This is an example of an exciting opportunity for companies when it comes to financing large projects today.”
At times, there is criticism of multinational financial institutions, such as the NIB, which enjoy the highest credit ratings based on the backing they receive from their founding members. Other financial institutions can hardly compete with them on an equal footing. Küüsvek says he is certainly familiar with the criticism, but that it is mostly unfair.
“First of all, I do not think that the term ‘competition’ necessarily applies. We really are not in competition with institutions like commercial banks in the member states. We increasingly collaborate with them and bring solutions to the market that they do not customarily offer. Like long-term loans, sometimes even with a repayment period of 30 years. This puts us in the role of long-term basic lender, whereas commercial banks administer various projects or facilities that need to be implemented at short notice. We put this in very clear terms at our meeting with Isavia during our visit here. The goal is for the NIB to be involved in the long-term financing of very large projects, but for the company to be able to rely on commercial banks where other aspects of its operations are concerned. It is good – as the saying goes – to be prepared to strike when needed. Being able to rely on a sizeable credit from commercial banks when the need arises is important.”
Küüsvek also broaches the question of international financial institutions tending to lend capital to both commercial banks from individual countries and their customers at the same time.
“I think this system has worked quite well. In certain cases, we have called on banks to work with us on project financing and we have also been asked to join discussions in this regard. We work together in many ways. For example, I see to it that Icelandic banks are involved in assisting the NIB with financing itself in Icelandic krónur. Banks and pension funds are custodians of large sums of ISK, so it is necessary to go looking in the wider economy. If we want to issue bonds denominated in Icelandic krónur, pension funds may want to invest in such bonds in the long term and banks in the short term. Other than that, I envisage banks being able to give us advice on such issues.”
So, for these reasons, you find that the criticism is unfounded?
“It is of limited value, as I said earlier. Most importantly, though, borrowers have a choice – a choice to borrow from us or commercial banks in their home countries. They also have the option of looking to other international financial companies. By having many options available, we ensure competition and the easiest channel for value creation.”
My conversation with Küüsvek ends with these words. Indeed, many more tasks await him, such as meetings with company executives, political leaders, and others regarding the various operations of the NIB in Iceland.