Enhancing. competitiveness. and the. environment. Annual Report 2007

Transcription

1 Annual Report 27 Enhancing competitiveness and the environment

2 Annual Report 27 International expert financing The Nordic Investment Bank s eight member countries are Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, Norway and Sweden. NIB grants long-term loans to projects both within and outside the member countries. The map shows the countries where NIB had lending activities at year-end 27. Year 27 January February March April May During the Bank s 32nd year of operations, NIB participated in the financing of nearly 6 new investment projects around the world, thereby contributing to business cooperation, investing activity and exports. NIB-financed Suzano pulp mill project in Brazil selected 26 Deal of the Year First global fixed-rate Japanese yen issue totals JPY 5bn This Annual Report covers NIB s activities and financial report for the period 1 January 31 December 27. For news and more information, please visit USD 1bn global benchmark launched First rouble bond launched, totals RUB 2bn New lending increases fivefold from 26 to EUR 533m Board of Governors highlights Baltic Sea regional cooperation at third annual meeting

3 Annual Report 27 This is NIB Lending Environment 4 NIB in brief 6 Five-year comparison 8 President s statement 1 Economic developments in 27 Appendices 92 Global reporting initiative 95 Abbreviations 14 Long-term lending 15 Lending in member countries 17 Lending in non-member countries Appendix 89 Loans agreed NIB and the environment Financial operations Financial report Organisation 28 Borrowing and treasury portfolio management 31 Capital structure Appendix 87 New long-term borrowing Report of the Board of Directors 37 Proposal by the Board of Directors to the Board of Governors 38 Income statement 39 Balance sheet 4 Changes in equity 41 Cash flow statement 42 Notes to the financial statements 73 Auditors reports 76 Corporate governance 8 Board of Governors 8 Control Committee 81 Board of Directors 82 Management Committee 83 Organisation chart 84 Human resources June July August September October November December Revised environmental policy published for public consultation Jan Jun cumulative lending totals EUR 1.2 bn, up more than twice from previous year All-time largest three-year global benchmark issue totals USD 1.5 bn NIB takes over NDEP chairmanship First Maple bond issue totals CAD 3 million and first New Zealand dollar-denominated bond totals NZD 4 million Major NIB environ mental project, St. Petersburg Sewage Sludge Incinerator, inaugurated Job satisfaction survey conducted NIB decides to contribute EUR 15 m to a European post-212 carbon credit fund to support environmentally beneficial projects New Chief Representative for China and East Asia appointed NIB Annual Report 27 1

4 The International Financial Institution of the Nordic and Baltic countries

5 This is NIB

6 This is NIB NIB in brief Mission. The Nordic Investment Bank (NIB) promotes sustainable growth of its member countries by providing longterm complementary financing, based on sound banking principles, to projects that strengthen competitiveness and enhance the environment. Strategy. NIB promotes competitiveness and supports the environment by providing financing in the form of loans and guarantees for activities in which NIB can add value and complement other financing sources. Moreover, the Bank continues to assess the environmental aspects of all its financing. NIB remains flexible in terms of supporting different areas of the economy but puts particular emphasis on projects involving: investments in infrastructure; investments improving the environment; large investments by the corporate sector; and small and medium-sized enterprises, targeted in cooperation with financial intermediaries. While maintaining focus on activities in the member countries, the Bank aims at continued expansion of activities in the neighbouring areas and in other countries where a mutual interest is identified. NIB carries out this strategy by proactively applying the Bank s relative strengths: NIB s status as an international financial institution, which facilitates the financing of cross-border activities and strengthens the possibilities to manage risks; the highest possible credit rating, which emanates from high asset quality, a strong balance sheet and ownership, and enables a stable supply of longterm financing; NIB s experience in complex financing structures in cooperation with other international financial institutions and public and private sector lenders; and the Bank s professional and highly motivated staff. NIB s stakeholders. As an international financial institution, NIB takes into account the interests of a variety of stakeholders. The chart below presents NIB s key stakeholders: customers, investors, financing partners, shareholders, staff, and groups related to environment and society. Customers Private and public companies and the public sector both in and outside NIB s member countries Investors Corporate investors, banks, pension and insurance funds, asset managers, central banks and government entities all over the world Environment & society Non-governmental organisations, media, general public The common international financial institution of its eight member countries Financing partners Other international financial institutions as well as public and private sector lenders Staff 158 employees, headquarters in Helsinki, Finland Owners Eight member countries: Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, Norway and Sweden 4 NIB Annual Report 27

7 This is NIB NIB in brief NIB s activities. NIB offers long-term loans and guarantees on competitive market terms to its clients in the private and public sector. The Bank was established in the mid-197s by the five Nordic countries: Denmark, Finland, Iceland, Norway and Sweden. In 25, Estonia, Latvia and Lithuania became members of the Bank. NIB is a multilateral financial institution that operates in accordance with sound banking principles. The Bank s operations are governed by an international agreement among the member countries and related statutes. The Bank finances projects both in and outside its member countries. Loans are granted for up to half the project s total cost. All projects considered for financing are analysed with regard to their sustainability and environmental consequences. The Bank considers environmental aspects to include not only ecological but also social dimensions of projects. In the member countries, NIB finances: projects in the manufacturing industry; infrastructure development; investments in energy, transport, telecommunications, water supply and waste management; cross-border mergers and corporate acquisitions; research and development; foreign investments into the member countries; and onlending to small and medium-sized enterprises. The Bank gives high priority to projects that improve the environment in the member countries and the areas adjacent to them. Outside the membership area, NIB grants loans for projects of mutual interest to the country of the borrower and the member countries. High priority is given to projects involving environmental improvements. NIB has loans outstanding in approximately 3 emerging markets in Africa and the Middle East, Asia, Europe and Eurasia, and Latin America. The Baltic Sea and Barents Sea regions are areas of priority in the operations of the Bank. NIB acquires the funds for its lending by borrowing on the international capital markets. NIB s bonds enjoy the highest possible credit rating, AAA/Aaa, with the leading rating agencies Standard & Poor s and Moody s. Key figures Net interest income Core earnings Profit Loans disbursed 2,39 1,65 Loan agreements 2,214 1,575 Loans outstanding 12,291 11,534 Guarantee commitments New debt issues 4,288 2,689 Debts evidenced by certificates 15,23 13,622 Net liquidity 4,39 3,224 Total assets 19,973 17,988 Equity/total assets (%) Profit/average equity (%) Number of employees NIB in 27 lending and funding at all-time highs focus on the energy and manufacturing sectors new environmental facilities set up loans outstanding in 38 countries borrowings outstanding in 2 different currencies no credit losses EUR 25 million in dividends to the member countries Loans outstanding fig. 1 in member countries Geographical distribution as of 31 Dec 27 Loans outstanding fig. 2 in non-member countries Geographical distribution as of 31 Dec 27 Borrowings outstanding fig. 3 Currency distribution as of 31 Dec 27 EUR m 3,5 3, 2,5 2, 1,5 1, 5 Denmark 12% Estonia 2% Finland 26% Iceland 8% Latvia 2% Lithuania.6% Norway 16% Sweden 33% EUR m Africa and Middle East 16% Asia 33% Europe and Eurasia 31% Latin America 2% USD 46% GBP 14% JPY 1% AUD 8% EUR 5% Nordic currencies 5% Other 12% The total amount of the percentage shares may differ from 1% due to rounding. NIB Annual Report 27 5

8 This is NIB Five-year comparison Amounts in EUR million INCOME STATEMENT Net interest income Commission income and expense etc General administrative expenses, depreciation and write-downs Core earnings 1) Adjustments to fair value in trading portfolio Credit loss/recovery Adjustment to hedge accounting Profit for the year BALANCE SHEET Assets Cash and cash equivalents, placements and debt securities 6,177 5,268 4,984 4,546 4,384 Loans outstanding 12,291 11,534 11,717 1,279 1,522 Intangible and tangible assets, property and equipment Accrued interest and other assets 1,461 1,143 1,435 1,495 1,723 Total assets 19,973 17,988 18,178 16,363 16,666 Liabilities and equity Amounts owed to credit institutions and repurchase agreements Debts evidenced by certificates 15,23 13,622 14,456 12,355 13,87 Accrued interests and other liabilities 2,367 1,726 1,29 1,811 1,563 Paid-in capital Statutory Reserve Credit risk funds Payments to the Bank s Statutory Reserve and credit risk funds, receivable Other value adjustments Profit for the year Total liabilites and equity 19,973 17,988 18,178 16,363 16,666 ACTIVITIES Disbursements of loans Member countries 2) 1, ,574 1,33 1,277 Other countries Total disbursements of loans 2,39 1,65 2,92 1,348 1,841 Guarantees issued Member countries 2) Other countries Total guarantees issued Loans outstanding at year-end Member countries 2) 9,873 9,26 9,51 8,192 8,35 Other countries 2,417 2,328 2,216 2,87 2,172 Total loans outstanding 12,291 11,534 11,717 1,279 1,522 Guarantee commitments at year-end Member country guarantees 2) Other country guarantees Total guarantee commitments New debt issues (including capitalisations) 4,288 2,689 2,59 1,88 3,258 Number of staff (at year-end) ) Core earnings consist of the profit before adjustments to hedge accounting, fair value adjustments made to the trading portfolio and credit losses and reversals of these. 2) Estonia, Latvia and Lithuania became members of the Bank on 1 January 25. As from that date, they are included in the figures for the member countries. 6 NIB Annual Report 27

9 This is NIB Five-year comparison Net interest income fig. 4 Profit fig. 5 Core earnings 1) fig. 6 EUR m EUR m EUR m Total assets fig. 7 Loans outstanding fig. 8 Borrowings outstanding fig. 9 EUR m 2, 17,5 15, 12,5 1, 7,5 5, 2, EUR m 16, 14, 12, 1, 8, 6, 4, 2, EUR m 16, 14, 12, 1, 8, 6, 4, 2, Non-member countries Member countries Loans in member countries fig. 1 Loans in non-member countries fig. 11 Borrowings fig. 12 EUR m 12, 1, 8, 6, 4, 2, EUR m 3, 2,5 2, 1,5 1, EUR m 16, 14, 12, 1, 8, 6, 4, 2, Outstanding Disbursed Outstanding Disbursed Borrowings outstanding New borrowings 1) Core earnings consist of the profit before adjustments to hedge accounting, fair value adjustments made to the trading portfolio and credit losses and reversals of these. NIB Annual Report 27 7

10 This is NIB President s statement The Nordic Investment Bank, like other International Financial Institutions or IFIs, has had to review its activities in the last few years. This has been partly the result of structural changes, manifested by the development of new financial instruments and institutions, which have increased the efficiency of financial markets and reduced the need for intervention by the public sector. This has also been partly the result of temporary factors related to high liquidity and a concomitant increase in the appetite for risk in the private sector. Environmental issues figure high on the political agenda However, IFIs must build their activities on longer-term needs. That is why NIB has reassessed its role and identified the financing of activities supporting competitiveness and the environment as its main targets, in order to promote sustainable development. The year 27 was the first full year of implementation of this strategy, and the experience shows that it gives a solid platform for the development of the activities of the Bank. Environmental issues figure increasingly high on the political agenda in the member countries. This is not only because of threats to climate and the international efforts to deal with them, but also because nature in the member countries is particularly vulnerable. In particular, the severe pollution of the Baltic Sea calls for special efforts. The political commitment is crucial for concrete actions. The agreement reached 8 NIB Annual Report 27

11 This is NIB President s statement within HELCOM to launch an action programme for the Baltic Sea is therefore an important step and it provides a solid basis for activities in this field. NIB will in the near term seek to further develop its activities in this field and ensure that it can lend strong support to the fulfilment of the targets set down by the governments. As a first step, a Baltic Sea Environment Financing Facility has been launched. A closely related issue is energy. The Baltic Sea region faces a challenge in meeting the long-term demand for energy. At the same time, emissions will have to be reduced. NIB will on its part proactively address both issues and recently announced the introduction of a Climate Change Mitigation and Adaptation Energy Facility. An important challenge is to increase the integration of energy systems and another to increase the utilisation of renewable energy sources. Another cornerstone is improving energy efficiency, which will require the dissemination of the many examples of best practice solutions that have been developed in the Bank s member countries. NIB has decided to participate in a carbon fund to be set up together with other financial institutions for the purpose of developing the longer-term, post-212 carbon credit market. A well-functioning international system for the trading of emission reductions will bring about benefits for all parties. Once the regulatory framework is in place, private sector investment will no doubt rapidly follow, but in the early stage, IFIs and national development banks have an important role to play in plotting the course. Another sector of paramount importance for the competitiveness of the economies of the Bank s member countries is transport and logistics. Much focus is today put on national projects, but transport corridors are only as effective as their weakest links. Strengthening transport and logistics will require a regional perspective beyond the conventional local and national frameworks, regardless of where along the corridor a bottleneck emerges. NIB has identified transport and logistics as one of the focus sectors for the Bank and will seek to proactively support investment in this field. The Bank will also continue to participate in developing cooperation mechanisms in this sector in the context of the Northern Dimension. Transport and logistics is a key sector for the competitiveness of the region Equally, if not even more important than long-term funding is the expertise and experience that NIB can put at the disposal of project owners and other stakeholders. This is particularly so when it comes to integrating environmental considerations into the investment process. NIB, like other IFIs, puts great emphasis on and much effort into safeguarding that every project is subjected to a due environmental process. Starting in 28, NIB s revised environmental policy is further sharpening this focus. Another area is Public Private Partnerships. PPP projects are successful only if they manage to bring private sector risk-taking and efficiency into the public projects. The achievement of this requires complicated set-ups. NIB has provided financing for the major part of PPP projects in the Bank s member regions and stands prepared to assist project partners. Still another cornerstone for competitiveness is innovation. This challenge is particularly significant in Europe, with its aging population and high cost levels. NIB s member countries are no exception, and much would be gained by expanding the financing of cross-border innovation activities in the region. The Bank is already today actively financing projects in various stages of the innovation process, including research and development. Alongside its traditional involvement in the corporate and public sectors, NIB will be a proactive partner in the focus areas listed above, providing increasing value added to all stakeholders. I wish to thank the staff and other stakeholders for their efforts and cooperation during the past year and look forward to successful cooperation in the coming year. Helsinki, March 28 Johnny Åkerholm President and CEO NIB Annual Report 27 9

12 This is NIB Economic developments in 27 The world economy, while slowing at the end of the year, posted its 5th year of solid growth. This was reflected also in the Bank s member countries. Most of them recorded growth rates above the long-term trends. While in general solid growth was accompanied by a good macroeconomic balance, signs of imbalances became increasingly evident in the smaller economies. Sentiment in financial markets changed fundamentally during the year Despite some moderation in economic growth by the end of the year, following a cooling of the construction sector, current account deficits widened and inflation accelerated. Higher inflation was partly a global phenomenon, but in some member countries domestic factors contributed to pushing the rate to, or near, double digit levels. Moreover, private credit growth, which has been fuelling domestic demand, remained high. The imbalances created further pressures on the current accounts of the Baltic economies and Iceland. Rapid economic expansion went hand in hand with soaring prices in the energy sector, one of NIB s focus sectors. Crude oil prices roughly doubled during the year, leading to a significant rise in many other petroleum product prices. Demand for energy and many other commodities such as metal and agricultural products has primarily been driven by emerging market economies where rising incomes and populations are producing new production and consumption patterns. Global investment spending in the metals and oil sectors was initially slow to react to rising demand and higher profits, but has recently gained pace. The economic environment varied 1 NIB Annual Report 27

13 This is NIB Economic developments in 27 significantly during the year. After a long period of abnormally low interest rates, low volatility in financial markets and the accompanying high appetite for risk, which was mainly a reflection of excess liquidity, conditions in the financial markets changed dramatically in the second half of the year, initiated by the US sub-prime mortgage crunch. Market participants started to realise the extent to which credit discipline had deteriorated in recent years, investors started to withdraw from risky assets and began a process of deleveraging. Uncertainty grew about the appropriate valuation of complex financial instruments and about the extent of losses at the financial institutions. This caused a dramatic rise in credit spreads and the previously abundant liquidity evaporated. This clear re-pricing of risk has also affected NIB s member countries. The ensuing financial sector turbulence and uncertainty produced strong headwinds against global economic growth, which slowed markedly in the year s final quarter. The direct impact on the real economy varied significantly across NIB s member countries. The negative impact was more severe in countries where credit expansion had been an important driver of economic growth, such as in the smaller member country economies. In some other member countries, where economic growth had surged not primarily because of easy access to credit but because of a burst in productivity, the impact was more muted. Increased market uncertainty affected NIB and its member country economies The fundamental shift in financial market sentiment had a significant impact on NIB, both on the Bank s asset side and on the liability side. In the first half of the year, margins in lending were under strong pressure and the private sector offerings did not always meet the risk-adjusted rate of returns that NIB has set for its activities. As a result, the signing of loans fell clearly short of the appropriations. All this changed in the summer. Rising credit spreads enabled more favourable margins on NIB s lending operations while funding costs declined. Consequently, new loan signings and disbursements rose significantly towards the end of the year and yielded a record high loan volume. The change in sentiment also had a clear impact on the demand for NIB s debt. While there was a slight drift upward in the funding costs in the early part of the year, the flight to quality clearly reduced the funding costs in the second half of the year. On the other hand, despite the fact that NIB s liquidity is placed in highly rated assets, the increase in credit spreads reduced the market valuations, and the closing of accounts recognised marked unrealised losses in the trading portfolio. NIB Annual Report 27 11