A conversation with Nordic Investment Bank

RICHARD KELLY: Thank you, everyone, for joining us for the next installment of our 5x10 Issuer's podcast series. It's great to be joined today by Laura Quinn, managing director and head of primary markets for TD Securities Dublin and Jens Hellerup head of funding and investor relations at Nordic Investment Bank. I think it's a very opportune time to be discussing the outlook, so as we see increasing returns to normality across regions, albeit at different paces and with different sectors having their own challenges. But I think we've seen a large number of individuals and organizations try to determine how to take those next steps successfully, given we still have a fair bit of uncertainty in the world and the outlook. So today, we wanted to delve into how the Nordic Investment Bank is looking at their priorities and goals for the upcoming year as we all take that next step forward. So with that, I will hand things over to Laura Quinn to introduce our guest.

LAURA QUINN: Thanks, Richard. I'm delighted today to be joined by Jens Hellerup, who is head of funding and investor relations at Nordic Investment Bank based in Helsinki. NIB has over 30 billion euro of debt outstanding. And Jens and his team typically fund 5 to 6 billion euros per annum. And on that note, we'll kick off with our first question for you today, Jens. The past 18 months has been challenging for all of us, and it was something no one could have predicted. It impacted all facets of life, including capital markets, particularly at the start of the pandemic. Thankfully, we are in a much stronger position today than we were 12 months ago, thanks to vaccines. However, with that in mind, I am interested to know what you think are the biggest risks facing capital markets over the next 12 month period.

JENS HELLERUP: Thank you, Laura. And I will just say, thank you for inviting me. I'm really happy that I'm able to represent NIB here and that you're thinking of NIB. And like you say, the biggest risk, there is a lot of risk out there. So it might be a challenge, maybe, to rank this risk, of course, like this risk are interlinked. We are talking about transfer inflation, control permanent inflation. We are talking about tapering from different central banks diverging policies, supply chains, energy prices. And of course, you say the pandemic, I hope it's over. But of course, there is also a risk here. I think the biggest risk is how this issue are handled. And here, baseline thing about the central bank and how they will deal with the risk. Let it be that central banks are behind the curve or believe inflation is transitory, then they don't hike the rates. The economy get overheated, and we get a high permanent inflation. Of course, on the other hand, I don't think we want the other situations where they kill the grocer too early. And of course, the worst could be a combination of these things with high inflation and no growth or slow pace like stagnation. So let me say, the biggest risk is central banks and how they read the situations. Of course, the central banks that can lead into volatility on the financial market. As you said, we are moving from almost two years when the focus was on the pandemic and central banks' measures to support this the financial market. But now we're basically going into a time where we should reduce this support. And this could, of course, get higher yields. And we will see more spread widening and so on, so on. So again, coming back, the biggest risk is central banks, if they read the market correct and react in a predictive manner. So that would be my response.

RICHARD KELLY: Thanks, Jens. And I guess the flip side of the risk coin is always, sometimes the opportunities. So I'm wondering, when you're looking at the next year, where are the areas where you see the biggest opportunities for Nordic Investment Bank? Are there areas where you're particularly excited about the funding perspective and the opportunities for the next year?

JENS HELLERUP: Well, in general, rising rates are generally beneficial for financial institutions, and NIB this will not be different. Widespread decompressed spread would also be a benefit. And I will even say, general more volatility in the market make NIB be more attractive to both to investors, and in fact, also to our lending clients. So this high uncertainty in the market could, in fact, make NIB more relevant and attractive. I would say, from a funding perspective, we probably have to be even better to navigate through different markets and volatility. Of course, it will be interesting to see, both the eurodollar and dollar market, how they develop in the dollar market, recalibrate our thinking from LIBOR to SOFR. And this might, of course, also take some time and then be interesting to follow that. Then I would also say that it's the whole wide field of sustainable finance. NIB, we just celebrate our 10 year anniversaries in green bonds. But what started off as kind of fairly simple has been much broader sustainability-linked bonds, transition bonds, social bonds. And we are, in fact, excited to follow and assess what kind of products which could fit into NIB's future business model. In the whole sustainable finance window, I believe NIB has a strong standing, as we have been working with, in fact, with environmental finance for more than 15 years. We started even before the green bond market. And this strong background on environmental issues, I think, in fact, that's an opportunity for NIB going forward.

RICHARD KELLY: Thanks. And I wonder, if we could delve a little bit more into that, I'm curious about your 2022 funding outlook itself. Are there areas where you've seen it particularly impacted from the experience of the last two years that's driving where you see that going? Are there any new projects or strategic focuses that you think it's important to flag here?

JENS HELLERUP: Maybe first, you said in the introduction, our funding program, 5 to 6 billion funding program. We are a little bit bigger next year, 8 billion euros is what we expect at the moment. Broadly, I would say, our strategy will remain the dollar benchmarks, the euro green bond benchmark, Nordic currencies, some Sterling, and other currencies as mentioned. The SOFR was something we started off with last year. I'm excited to follow up on that one. So maybe not a lot of new things. We are, now and then, discussing should we issue a non-green euro benchmark with a slightly higher funding program. That might be the case. We need to see how it fit in. So maybe I will not promise it yet. One thing I'll also say that time has show us that we have access to market in volatile markets in different markets. So I still think, like diversification is very important. And that's both like with the currencies, the type of investor, and geographic distribution of our bonds. Maybe just one project I will mention is that we have a climate risk project. NIB is a signature to the TCFD. And we are in the process of assessing the climate risk, both in fact, in the lending and in the treasury portfolio. The risk appetite statement is done. We will work on a strategy and how to communicate this climate strategy. And then we also have a new sustainability policy, which we're also excited about. So this is some of the new projects I would like to highlight here.

RICHARD KELLY: OK. Maybe take a step away quickly from front line markets and activities and ask a bit more of a personal question, at least insofar as how we deal with people going ahead. I mean, as issuers, tends to be a very heavy reliance on road shows to meet with investors and the same across the partner organizations. I'm wondering, where do you see the future of business travel? Is that something you see evolving? Do we need to prepare for a more hybrid approach? I mean, how do you see yourself interacting with investors and marketing and trying to get that information out there?

JENS HELLERUP: Well, we definitely believe there is a significant benefit of, in fact, physical meetings with investors. And I think the last 18 months, 2 years, has shown that there is a shortcoming of virtual meetings with investors. Of course, we are not the biggest issue. But in the near future, we are definitely keen to come out and meet the investors again. When the world reopens, there is a catch up work for us. Where does it go in the future? Hard to say. We will, of course, plan our trips careful. And of course, like an institution, for us, some say the carbon footprint is important to follow. I would say, when it comes to meeting with banks and other stakeholders, maybe there is more potential to reduce the physical meetings. It might not be necessary to have physical meetings with counterparts several times per year. Some of these ones could be virtual. Same when we meet researchers. I think the last 18 months has shown that it has been very easy and easy to catch up with research. So this is maybe a place where it can be reduced travel. So maybe just to, in a nutshell, we will meet investors now. There is a catch up. In the long run after this, yeah, I think that we'll probably also be reduced investors meeting. But that will probably be after the catch up. We all need to think about our carbon footprint. But in the near future, I think we, at least the investors, we are very keen to come out to see them.

RICHARD KELLY: And I think maybe touching back on that carbon footprint, and you had mentioned earlier celebrating the 10 year anniversary of your first green bond. We have seen a significant push on the emphasis of ESG coming out of this crisis over the last couple of years. So as one of the market leaders within that ESG space, when you look at the green social sustainable bond markets next year and going beyond, is there an area that you look at as one of the biggest risks in the development of the rapidly growing space there?

JENS HELLERUP: Well, as previous mentioned, and correct, NIB has been involved in the ESP, ESG space for a long time. And we are following it very close. We are involved in the principles and in all the working groups. We are looking for new initiatives like blue bonds. But we don't have anything concrete. So regarding the biggest risk, of course, guidelines and regulations. So we are definitely supporting that. I would say the biggest risk that is that the regulations will not be done in the right way, which of course, is naturally easy to say. Also, being based in Europe, the EU taxonomy, the green bond standard are very important we issue the right things, so I included it in the taxonomy. Obviously, the right things are done for the green bond standard. Regulations need to be ambitious. But on the other hand, it should not kill the market by making the regulations too tough or too complicated. Another example is also, well, that's also linked to the EU taxonomy. There is an article regarding the green asset ratios and green investment ratios, which sets requirements for banks and asset manager. Here, there is a proposal to base like exclude all central governments and supranational issuers in the calculations. This seems to me, be a little bit odd, as these institutions have been driving the market and then the whole development over the last 12, 13 years since the green bond market was born. So basically, my point is that we'll have the right regulations and find the right balance between being ambitious and on the other hand, try to reach our common goal for a sustainable future.

LAURA QUINN: All right. Well, thanks very much, Jens, for joining us on today's podcast. It's been fascinating to get your take on the challenges facing the global central bank community over the next 12 months, but also great to hear how positive you are for 2022 with that increased funding program. We definitely look forward to working with you on that here at TD. And congratulations on that 10 year anniversary of your first green bond. Thanks again.

JENS HELLERUP: Thank you from my side as well. Delighted to join you.

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