Exhibit 5.1
NORDIC INVESTMENT BANK
INTERIM REPORT 1—8/2006 | | 
|
NIB Interim report 2006
1
The Nordic Investment Bank’s activities in the first eight months of 2006 were affected by ample liquidity on the market. Profits declined as a result of the general increase in market rates, while the operational results in terms of core earnings remained stable. In lending, a shift to non-member countries took place. NIB’s revised mission and strategy, emphasising NIB’s r ole in strengthening competitiveness and enhancing the environment, was launched during the period.
NIB recorded a profit of EUR 90 million for the year’s first eight months, compared with EUR 117 million for the same period last year. The decrease in profits was due to a fall in the market value of the trading portfolio, which followed from the increase in interest rates. The market value of the trading portfolio fell by EUR 10.5 million, compared to an increase of EUR 16.2 million in the comparable period of 2005. Net interest income was EUR 120 million, or 8.5% higher than during the first eight months of 2005. The increase in net interest income was a result of higher interest rates and a stable level of interest-earning assets. NIB’s core earnings, i.e. the profits excluding credit losses, the impact of gains and losses on items at fair value, and changes in the market value of the trading portfolio, amounted to EUR 104 million, which was EUR 5.5 million above the core earnings during the same period last year.
New loans agreed amounted to EUR 848 million, compared to EUR 1,747 million during the same period last year. Loans disbursed amounted to EUR 807 million (1—8/2005: 1,378). The decline reflects extraordinarily high figures in the comparable period last year and ample liquidity on the market, which resulted in lower demand for loans and in prepayments. The decline was concentrated to some member countries, while the demand for NIB’s loans outside the membership area remained strong. Loans outstanding and guarantees amounted to EUR 11,480 million at end-August 2006, compared with EUR 11,742 million at year-end 2005. The decline resulted from movements in exchange rates, as the depreciation of the US dollar reduced the value of assets in euro terms.
The volume of new debt issues during the period amounted to EUR 1,929 million (1,923). Total debts evidenced by certificates constituted EUR 13,766 million at period-end, compared with EUR 14,456 million at year-end 2005.
NIB’s balance sheet total at the end of the period was EUR 18.0 billion, down from EUR 18.2 billion since year-end 2005. This was mainly due to the weakening of the US dollar against the euro. Equity reached EUR 1,977 million at period-end, compared with EUR 1,946 million at year-end. During the period under review, NIB paid its owners a dividend of EUR 55 million for the year 2005 (dividend for 2004: 55 million). Profits in relation to average equity were 6.8% (9.6). The solvency ratio was 11.0% (10.3).
During the period NIB celebrated its 30th anniversary and introduced its revised strategy. According to the revised strategy, NIB will promote sustainable growth of its member countries by providing financing for projects that strengthen competitiveness and enhance the environment. NIB’s activities were reorganised, in order to further enhance effectiveness and further develop the credit process. Business origination was organised as one function and separated from credit and analysis. In addition, three new members were appointed to the Bank’s Management Committee.
The quality of the Bank’s loan portfolio and of its financial counterparties continues to be maintained at a high level. During the period no new provisions for impairment were made.
Core earnings are expected to continue to develop at a steady pace during the remainder of the year and will for the year as a whole end up somewhat higher than in 2005. Overall profitability will depend on the development of market interest rates, as these have a strong influence on the market value of the trading portfolio.
2
LENDING
Member countries
In the member countries, the period January—August 2006 was characterised by low demand for NIB’s long-term loans in the beginning, and gradually increasing activity towards the end of the period. The volume of NIB’s new lending was significantly lower than during the same period last year. NIB entered into loan agreements for EUR 484 million (1,188) and a total of EUR 420 million (1,165) was disbursed. Amortisations and prepayments amounted to EUR 594 million compared with EUR 467 million during the same period last year.
Loans outstanding and guarantees amounted to EUR 9,244 million at end-August 2006, compared with EUR 9,526 million at year-end 2005. Loans agreed but not yet disbursed amounted to EUR 476 million, compared with EUR 437 million at year-end.
The amount of loans agreed in Iceland was high. The amount of loans agreed in Finland and Sweden, however, was lower than in previous years.
The manufacturing industry, which in recent years has been the largest sector, accounted for 27% of the amount of loans agreed during the period. A loan was approved for financing investments in smelter plants and mining activities in Sweden and Finland. Loans to environmentfriendly and energy-saving investments in the pulp and paper industry were also significant. The energy sector, which comprised 22% of the amount of loans agreed, was the second largest recipient of loans during the period. The main part of the financing went to Iceland, where NIB agreed on a loan for a transmission line to an aluminum smelter and on loans for two geothermal power plants.
The largest single agreement during the period concerned the financing of a PPP road project in Norway. In Estonia, NIB agreed on a loan for the modernisation of a hospital.
The currency distribution of new lending followed the same pattern as before. The euro was the dominant lending currency, with a 54% share of disbursements during the period under review. Other important lending currencies were the Swedish krona and the Norwegian krone, accounting for 15% and 14% respectively.
Non-member countries
Demand for NIB’s loans outside the member countries remained strong during the first eight months of 2006. New loans were granted in the amount of EUR 595 million (760): EUR 438 million was granted to 16 individual projects and EUR 156 million to seven loan programmes with financial and other intermediaries. The Bank entered into 15 new loan agreements corresponding to EUR 364 million (559) in the first eight months. Loan disbursements for the period amounted to EUR 387 million (212).
Loans outstanding rose to EUR 2,237 million, compared with EUR 2,216 million at year-end 2005. Loans agreed but not yet disbursed amounted to EUR 1,124 million, compared with EUR 1,188 million at year-end.
The largest borrower regions during the period were Asia and Central and Eastern Europe. At the end of the period, NIB had loans outstanding in 29 nonmember countries. Loans outside the member countries are often granted for public sector projects, to governments or with a government guarantee. However, an increasing share of loans is granted for projects in the private sector, mostly concerning privatised infrastructure such as telecommunications or energy, but also for pulp and paper projects, for example.
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NIB’s lending in non-member countries continues to be dominated by loans for infrastructure investments, especially in the energy, transportation and telecommunications sectors. The loans agreed during the period for individual projects comprised, for example, the financing of an energy plant in Poland, public transportation in Chile and Turkey, port facilities in Morocco, mobile telecommunications in Brazil and Russia, and a paper mill in Jordan. New loan programmes were agreed during the period with China and Vietnam. Examples of approved subprojects under NIB’s loan programmes include investments in the industrial and service sectors, as well as in the environmental and health care sectors.
NIB continues to increase cooperation with intermediaries in its lending in non-member countries. At the end of the period, the number of intermediaries outside the membership area was 27. Of these intermediaries, 21 were financial intermediaries—mainly state-owned development banks, local commercial banks and regional development banks. Ministries and large companies in the infrastructure sector also act as intermediaries. During the first eight months of the year NIB approved 26 subprojects under its programmes with intermediaries.
The US dollar was still the predominant loan currency in NIB’s lending outside the membership area. The strengthening of the euro during the period had a negative impact of EUR 149 million on the amount of loans outstanding.
ENVIRONMENTAL FINANCING
Financing environmental investments is one of the cornerstones of NIB’s lending operations. NIB actively promotes investments that directly or indirectly reduce harmful emissions or other environmental hazards. Priority is given to environmental investments that reduce cross-border pollution. During the period under review, NIB granted six new environmental loans, totalling EUR 31 million. Of the total loans disbursed during the period, 12% comprised environmental loans.
Important environmental projects during the period comprised investments in geothermal energy, as well as investments in the pulp and paper industry and district heating. Through financial intermediaries, NIB also financed environmental investments in the agricultural sector and wind power plants. All these projects have a significant positive environmental impact.
During the period, NIB, together with other financial institutions, signed the European Principles for the Environment. The initiative is aimed at establishing a common approach to environmental management associated with the financing of projects and at promoting sustainable development and the harmonisation of environmental principles, practices and standards in the EU.
NIB plays an active role in the Northern Dimension Environmental Partnership (NDEP). The aim of the partnership is to coordinate and streamline the financing of environmental projects with crossborder effects in the Baltic Sea and Barents regions, with a focus on Northwest Russia and including the enclave of Kaliningrad. Sixteen large environmental projects are financed through the NDEP. NIB is responsible for preparing and coordinating the financing of seven of these projects. The Ladoga programme, which is one of the NIB-led projects financed through the partnership, is mainly geared towards large private companies in the pulp, paper and metal industries in the Ladoga area. During the period under review, a loan for a new project within the pulp and paper sector was granted. The investments in a wastewater treatment plant, changing from the combustion of oil to natural gas and shifting to total chlorine-free bleaching will lead to a reduction of harmful emissions to both water and air. In St. Petersburg a feasibility study was completed during the period for another project led by NIB concerning direct discharges. Thus, the planning of the financing structure can begin. In the Leningrad region, a wastewater treatment project has proceeded to the disbursement stage.
4
BORROWING
In the first eight months of 2006, NIB carried out 42 (21) borrowing transactions in 8 (7) different currencies, in an amount corresponding to EUR 1,929 million (1,923).
The US dollar was NIB’s most important borrowing currency during the period. The Bank carried out seven transactions in US dollars totalling EUR 950 million. In February 2006, the Bank launched its fifth global benchmark transaction of USD 1 billion in the form of five-year bonds. The bonds were sold to investors round the world on the basis of their global format and liquidity.
The sales were distributed as follows: Asia/Japan 61%, North America 18%, and Europe and the Middle East together 21%.
NIB was able to issue its first domestic Australian dollar transaction in the form of an AUD 300 million (EUR 187 million) issue with a five-year maturity. The issue was followed up with a second transaction of the same size, but with a three-year maturity. Another noteworthy transaction was NIB’s first Mexican peso-denominated deal, amounting to MXN 1 billion (EUR 76 million), with a five-year maturity. The bonds were mainly bought by domestic pension funds.
The Japanese yen, the pound sterling, the New Zealand dollar, the Hong Kong dollar and the new Turkish lira were the other borrowing currencies during the period.
Total debts evidenced by certificates constituted EUR 13,766 million at period-end, compared with EUR 14,456 million at year-end 2005.
Helsinki, October 2006
Johnny Åkerholm
President and CEO
5
Profit and loss account
(EUR 1,000) | | Jan—Aug 2006 | | Jan—Aug 2005 | | Jan—Dec 2005 | |
Interest income | | 429,310 | | 338,759 | | 528,799 | |
Interest expense | | -309,414 | | -228,263 | | -360,135 | |
Net interest income(2) | | 119,896 | | 110,496 | | 168,664 | |
| | | | | | | |
Commission income and fees received | | 4,008 | | 6,158 | | 8,634 | |
Commission expense and fees paid | | -1,126 | | -1,181 | | -1,524 | |
Net profit on financial operations(3) | | -12,138 | | 19,732 | | 17,335 | |
Foreign exchange losses | | 141 | | -7 | | -105 | |
Operating income | | 110,781 | | 135,199 | | 193,004 | |
| | | | | | | |
Expenses | | | | | | | |
General administrative expenses | | 18,280 | | 15,880 | | 24,034 | |
Depreciation | | 2,872 | | 2,461 | | 3,794 | |
Credit loss / recovery | | — | | -119 | | -119 | |
Total expenses | | 21,152 | | 18,222 | | 27,709 | |
Profit for the period | | 89,629 | | 116,977 | | 165,295 | |
Balance sheet
(EUR 1,000) | | | | 31 Aug 2006 | | 31 Aug 2005 | | 31 Dec 2005 | |
Assets(2) | | | | | | | | | |
Cash and cash equivalents | | | | 3,645,281 | | 4,179,801 | | 3,568,561 | |
Financial placements | | | | | | | | | |
Placements with credit institutions | | | | 97,325 | | 107,868 | | 105,867 | |
Debt securities | | | | 1,363,119 | | 1,352,860 | | 1,302,595 | |
Other | | | | 6,409 | | 7,457 | | 7,052 | |
| | | | 1,466,853 | | 1,468,185 | | 1,415,514 | |
| | | | | | | | | |
Loans outstanding(4) | | | | 11,455,414 | | 11,315,499 | | 11,716,596 | |
| | | | | | | | | |
Intangible assets | | | | 7,236 | | 6,384 | | 7,423 | |
Tangible assets | | | | 34,870 | | 35,167 | | 34,884 | |
Other assets | | | | | | | | | |
Derivatives | | | | 937,340 | | 1,149,126 | | 1,076,046 | |
Other assets | | | | 8,345 | | 408 | | 2,569 | |
| | | | 945,685 | | 1,149,534 | | 1,078,616 | |
| | | | | | | | | |
Paid-in capital and payments to the Bank’s | | | | | | | | | |
reserves, receivable | | | | 47,494 | | 52,274 | | 52,274 | |
| | | | | | | | | |
Accrued interest and fees receivable | | | | 367,229 | | 319,044 | | 304,566 | |
Total assets | | | | 17,970,062 | | 18,525,889 | | 18,178,433 | |
| | | | | | | | | |
Liabilities and equity | | | | | | | | | |
Liabilities(2) | | | | | | | | | |
Amounts owed to credit institutions | | | | | | | | | |
Short-term amounts owed to credit institutions | | | | 684,440 | | 734,986 | | 467,985 | |
Long-term amounts owed to credit institutions | | | | 91,242 | | 111,552 | | 100,075 | |
| | | | 775,682 | | 846,538 | | 568,060 | |
| | | | | | | | | |
Debts evidenced by certificates(4) | | | | | | | | | |
Debt securities issued | | | | 13,498,075 | | 14,230,881 | | 14,205,040 | |
Other debt | | | | 268,096 | | 235,317 | | 250,663 | |
| | | | 13,766,171 | | 14,466,198 | | 14,455,702 | |
| | | | | | | | | |
Other liabilities | | | | | | | | | |
Derivatives | | | | 1,114,404 | | 1,031,040 | | 934,987 | |
Other liabilities | | | | 5,461 | | 5,301 | | 5,283 | |
| | | | 1,119,865 | | 1,036,341 | | 940,271 | |
| | | | | | | | | |
Accrued interest and fees payable | | | | 331,052 | | 277,275 | | 268,832 | |
Total liabilities | | | | 15,992,769 | | 16,626,352 | | 16,232,865 | |
| | | | | | | | | |
Equity | | | | | | | | | |
Authorised and subscribed capital | | 4,141,903 | | | | | | | |
of which callable capital | | -3,723,301 | | | | | | | |
Paid-in capital * | | 418,602 | | 418,602 | | 418,602 | | 418,602 | |
Statutory Reserve | | | | 644,983 | | 644,983 | | 644,983 | |
Credit risk reserves | | | | 777,162 | | 666,867 | | 666,867 | |
Payments to the Bank’s reserves, receivable | | | | 42,713 | | 42,713 | | 42,713 | |
Other value adjustments | | | | 4,204 | | 9,395 | | 7,109 | |
Profit for the period | | | | 89,629 | | 116,977 | | 165,295 | |
Total equity | | | | 1,977,293 | | 1,899,537 | | 1,945,569 | |
Total liabilities and equity | | | | 17,970,062 | | 18,525,889 | | 18,178,433 | |
| | | | | | | | | |
Guarantee commitments | | | | 25,000 | | 25,000 | | 25,000 | |
The Nordic Investment Bank’s accounts are kept in euro. On 31 August 2006, EUR 1.00 = DKK 7.46 / ISK 88.92 / NOK 8.08 / SEK 9.27 / USD 1.29.
* Of paid-in capital, EUR 413,821,070 has been received as of 31 August 2006.
Cash Flow Statement
(EUR 1,000) | | Jan—Aug 2006 | | Jan—Aug 2005 | | Jan—Dec 2005 | |
Cash flows from operating activities | | 106,276 | | 119,227 | | 186,065 | |
Investing activities | | 241,825 | | -1,080,636 | | -1,480,741 | |
Financing activities | | -487,837 | | 1,530,251 | | 1,519,279 | |
Change in net liquidity | | -139,735 | | 568,842 | | 224,603 | |
| | | | | | | |
Net liquidity at beginning of period | | 3,100,576 | | 2,875,973 | | 2,875,973 | |
Net liquidity at end of period | | 2,960,841 | | 3,444,815 | | 3,100,576 | |
Changes in equity
(EUR m) | | Jan—Aug 2006 | | Jan—Aug 2005 | | Jan—Dec 2005 | |
Equity at 1 January | | 1,946 | | 1,781 | | 1,781 | |
| | | | | | | |
Paid-in capital | | 5 | | 5 | | 5 | |
Paid-in capital, receivable | | -5 | | 10 | | 10 | |
Payments to the Bank’s reserves, receivable | | — | | 43 | | 43 | |
Dividend payment | | -55 | | -55 | | -55 | |
Available-for-sale portfolio | | — | | — | | — | |
Hedge accounting | | -3 | | — | | -2 | |
Profit for the period | | 90 | | 117 | | 165 | |
Changes in equity, total | | 32 | | 119 | | 165 | |
| | | | | | | |
Equity at end of period | | 1,977 | | 1,900 | | 1,946 | |
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Key figures
(EUR m) | | Jan—Aug 2006 | | Jan—Aug 2005 | | Jan—Dec 2005 | |
Net interest income | | 120 | | 110 | | 169 | |
Profit | | 90 | | 117 | | 165 | |
Loans disbursed and guarantees issued | | 807 | | 1,378 | | 2,092 | |
New loan agreements | | 848 | | 1,747 | | 2,616 | |
New debt issues | | 1,929 | | 1,923 | | 2,059 | |
Profit/average equity (%) | | 6.8 | | 9.6 | | 8.9 | |
| | 31 Aug 2006 | | 31 Aug 2005 | | 31 Dec 2005 | |
Equity | | 1,977 | | 1,900 | | 1,946 | |
Equity/total assets (%) | | 11.0 | | 10.3 | | 10.7 | |
Equity+callable capital/total assets (%) | | 31.7 | | 30.4 | | 31.2 | |
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