NIB’s Henrik Normann – the welfare sector needs a bank director too

“The Nordic countries contributed 278 million euro. In 40 years this has grown into 3.1 billion euro. During that time we have paid dividends of 800 million euro to the countries,” says Henrik Normann in that special Scandinavian version of Danish which Danes use to be sure they are understood – which includes some English expressions when it is particularly important not to be misunderstood. 

Since 2005 the three Baltic states have also been full members and owners of the bank. Its headquarters lie in Helsinki, with 190 employees. The dividends from NIB alone would be enough to finance the Nordic Council of Minister for more than six years.

The Nordic Investment Bank’s task is to lend money to projects which either improve competitiveness or to green investments. Defining a green investment sounds easier than defining what improves competitiveness – how do you actually decide that?

“To give it a short answer: Competitiveness is what creates welfare. Together with economists like Christian Ketels at the Harvard Business School we have developed a tool to measure how a project can be defined by looking at four factors: Technology, human capital, infrastructure and market impact.

“In order to improve technology we might provide loans to research and development projects, when it comes to human capital we sometimes support education. Competitiveness also depends on good infrastructure – so we’re talking electricity grids, roads and so on. Market impact is about solving tasks cheaper than the competition. 

“We grade projects by looking at all these factors, from excellent to below average. If we look at what we have invested in, 50 percent of the loans have been linked to greener development, 40 percent have been linked to competitiveness while the remaining 10 percent have been projects which for instance improve the cooperation between the Nordics and the Baltics. 

“Most of all we want to finance green projects which also improve competitiveness, of course. Some 30 percent of our projects tick both boxes. The best thing is if we can contribute to a sustainable future. But we also have green projects which cannot be said to improve competitiveness.”

Things should not be too small

The Nordic Investment Bank does not often make the news. But when it does, it is often about some member country’s politicians wanting to turn the bank into something else – like a green only investment bank or making NIB lend money to small businesses and entrepreneurs.

How do you feel about that?

“First of all, it is always positive when people show an interest in the bank. Secondly, we are already a green bank in many ways. No matter what people might think we should be doing, it is my personal opinion that there must be a certain size to make things effective. I would become worried if you established a green Swedish bank, a green Norwegian bank and a green Danish bank, for instance. 

“It is better to use a common bank in that case, since the process of considering a loan is the same. By being bigger you also secure diversification of the projects, which makes things less risky. 

“But NIB is an instrument for the politicians. I am not supposed to have a view of what the bank’s mandate should be. All I’m saying is: Watch out so that you don’t end up with too many small units!”

So what is the advantage of getting a loan from NIB, compared to other providers? Can green projects get a lower interest rate if they come to you?

“We do not compete on interest rates. But we are not into profit maximisation either. The biggest difference is that we can provide a much longer term loan. The longest loan we have provided is for a Baltic project, and it runs over 35 years.”

Quality mark

“We can also not finance a project with more than 50 percent. But just the fact that a project has been promised NIB backing is a quality mark which makes it easier to finance the rest of the project. We can also go into a project which has secured half of its financing over five years and we can take on the other half, but over 20 years. We try to exploit the ‘extra effect’ which we can provide. The technical term for this is additionality.” 

Not many banks have a triple A rating like the Nordic Investment Bank – the highest credit rating a bank can get. NIB is punching above its weight, the ratings agency Moody writes, using one of President Obama’s favourite expressions to describe why the bank has retained its high rating during its 40 years in the market. 

“Of course we have lost money on some projects, like in Iceland in 2008. That year the bank also ran with a loss. But during the financial crisis we always had access to the international capital markets,” points out Henrik Normann.

That meant the bank could keep issuing bonds, which is a way of bridging the gap which always has been the great challenge for the financial markets – the fact that those who want to lend money often operate with a shorter horizon than those who want to borrow. The biggest players in the bond markets are states and building societies. 

The finance crisis was born when the building societies packaged different mortgages in a way which made it impossible of those buying bonds to see what level of risk they were taking. When house prices fell in the USA, this meant that those who wanted to lend money fled to the few institutions which were deemed to be safe, including NIB.

Cannot stop a tsunami

“We used that trust when we saw gaps emerging which meant that Nordic projects did not get necessary finance. A bank with no losses is not doing its job. 

“You can never stop a tsunami like the finance crisis, but we can operate a bit against the market current,” says Henrik Normann.

Has NIB also helped secure higher employment rates in the Nordics and Baltics?

“I believe a small bank like us would be arrogant to believe that. But what I can say is that we have helped secure the welfare of the Nordic countries. Indirectly we have also been able to help finance projects which have then been possible to execute in the Nordic region, and which might otherwise have been moved abroad. In that sense we have created or kept jobs in the Nordic region.” 

Achieving more than profitability

What is the difference between working for Danske Bank, where you worked before as Managing Director of Danske Markets, and working for NIB?

“I think I will give a politician’s answer and say that the jobs have more things in common than not. But if I were to mention some differences, the aims were clearer at Danske Bank, were economic results took precedence. At NIB we have the advantage of being owned by eight nation states, but we also have the somewhat more diffuse goal of making ‘an impact’, we are meant to achieve more than being just profitable.” 

Contributing to the development of green technology is one such goal. Henrik Norman points out that it is not only the Baltic states which can benefit from NIB’s extremely positive rating. All in all, NIB’s balance sheet total is 28 billion euro. 

“We also lend money to many municipalities in the Nordics and Baltics, and right now we are involved in a project where the city of Stockholm is constructing a waste treatment plant which can also separate the tiny plastic particles which environmental researchers are worried about, and which would otherwise end up in the Baltic Sea.”

Mariana Mazzucato and Henrik Normann at NIB’s 40th anniversary. (Photo: Björn Lindahl)

How active should the state be?

The main speaker at NIB’s anniversary event during the Nordic Council’s Copenhagen meeting was Mariana Mazzucato, who is professor in the economics of innovation at the University of Sussex in the UK.

She argues the state should be playing a greater roll in industrial development. In a range of studies of different trades, like pharmaceuticals, biotechnology and IT, she has shown how great a role basic public research plays. In one study of how the iPhone was developed, she shows how all of the most important technologies which make the mobile telephones smart have been financed with public money – like the internet, GPS, touch screens and voice recognition software like Siri. 

Is it the role of the state or NIB to choose between different green technologies, for instance wave power or wind power, and thus influence development?

“If you are providing subsidies for a new technology, they should at least be time limited. You must look at whether the marginal costs will fall – is it for instance cheaper to build a wind farm in a few years from now, compared to today? We must make sure we don’t develop new subsidies which could turn into the new EU agriculture subsidies – which they never managed to end. The most important thing politicians can do is not so much pick the winners, as killing off the losers.”

Will the Nordic Investment Bank be here in 40 years from now?

“I believe all companies should ask themselves every five years: Are we relevant? I think NIB will be in five years from now. The financial sector will prevail, in any case. We are among the oldest trades in the world, we’re mentioned in the Bible,” says Henrik Normann, who likes to make jokes about bank directors and how they are far from people’s favourite group of professionals.