Nordic Investment Bank – Aaa stable · Nordic Investment Bank's (NIB, Aaa stable) credit profile reflects its strong fundamentals: healthy capital adequacy, ample liquidity and

SOVEREIGN AND SUPRANATIONAL

ISSUER IN-DEPTH6 October 2017

RATINGS

Nordic Investment Bank (NIB)Rating Outlook

Long-Term Issuer Aaa STA

Short-Term Issuer P-1 STA

Senior Unsecured Aaa STA

TABLE OF CONTENTSOVERVIEW AND OUTLOOK 1Organisational structure and strategy 2CREDIT PROFILE 6Capital adequacy: Very High 6Liquidity: Very High 11Strength of member support:Moderate 14Rating range 17Comparatives 18DATA AND REFERENCES 19

Contacts

Heiko Peters [email protected]

MalgorzataGlowacka

49-69-70730-938

Associate [email protected]

Kristin Lindow 212-553-3896Senior Vice [email protected]

Nordic Investment Bank – Aaa stableAnnual credit analysis

OVERVIEW AND OUTLOOKNordic Investment Bank's (NIB, Aaa stable) credit profile reflects its strong fundamentals:healthy capital adequacy, ample liquidity and strong track record of support from its highlyrated shareholders. It enjoys the highest weighted median shareholder rating and one of thehighest average borrower ratings among the multinational development banks (MDBs) werate. The bank's eight member states are Denmark (Aaa stable), Estonia (A1 stable), Finland(Aa1 stable), Iceland (A3 stable), Latvia (A3 stable), Lithuania (A3 stable), Norway (Aaastable) and Sweden (Aaa stable).

NIB's mandate focuses on the provision of long-term infrastructure and investment financewithin its member states, to the public and private sectors, and to financial intermediaries.Despite its regional focus and its specific mandate – to improve competitiveness andenvironmental quality – the bank has broadened its lending to small and medium-sizedenterprises (SMEs) and to mid-sized corporates, and has a portfolio outside the Nordic-Balticregion.

NIB's capital leverage is substantially higher than that of most other MDBs, but its lendingactivities generally carry low intrinsic risk and it has consistently very low nonperformingloans. It benefits from a very high level of extraordinary support which is a function ofshareholder's ability and willingness to support the institution, above and beyond theircontractual obligations.

A deterioration in NIB’s intrinsic financial strength, such as a significant weakening inits capital adequacy or liquidity, would lead to negative rating pressure. A reduction inshareholder support, diminished shareholder willingness to provide new or callable capitalwhen needed or a withdrawal of a key member would also put negative pressure on itsAaa rating. Additionally, more intense competition from other market players could pose achallenge to NIB's credit profile.

This credit analysis elaborates on NIB's credit profile in terms of capital adequacy, liquidityand strength of member support, which are the three main analytical factors in Moody’sSupranational Rating Methodology.

https://www.surveygizmo.com/s3/1133212/Rate-this-research?pubid=PBC_1085615

https://www.moodys.com/credit-ratings/Nordic-Investment-Bank-credit-rating-551500

https://www.moodys.com/credit-ratings/Denmark-Government-of-credit-rating-230700

https://www.moodys.com/credit-ratings/Estonia-Government-of-credit-rating-600046984

https://www.moodys.com/credit-ratings/Finland-Government-of-credit-rating-278070

https://www.moodys.com/credit-ratings/Finland-Government-of-credit-rating-278070

https://www.moodys.com/credit-ratings/Iceland-Government-of-credit-rating-392575

https://www.moodys.com/credit-ratings/Latvia-Government-of-credit-rating-600016806

https://www.moodys.com/credit-ratings/Lithuania-Government-of-credit-rating-600018187

https://www.moodys.com/credit-ratings/Norway-Government-of-credit-rating-565700

https://www.moodys.com/credit-ratings/Norway-Government-of-credit-rating-565700

https://www.moodys.com/credit-ratings/Sweden-Government-of-credit-rating-730900

https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1059755

MOODY'S INVESTORS SERVICE SOVEREIGN AND SUPRANATIONAL

Organisational structure and strategyNIB’s strategy focuses upon improvements to the competitiveness and environment of member states

NIB was established in 1975 by the five Nordic nations: Denmark, Finland, Iceland, Norway and Sweden. In 2005, the three Baltic states– Estonia, Latvia and Lithuania – became members, reflecting their long-standing economic and political ties with the Nordic region.

Exhibit 1

NIB's members comprise the five Nordic nations and three Baltic states

Sources: NIB, Moody's Investors Service

The three Aaa-rated members, Denmark, Norway and Sweden, own the largest share of NIB’s subscribed capital, at 77%. AddingFinland (Aa1 stable), which is rated one notch lower, the share rises to 95% of total subscribed capital. The rest of the member states– Estonia (A1 stable), Iceland (A3 stable), Latvia (A3 stable) and Lithuania (A3 stable) – while rated lower, are all well placed in theinvestment grade rated universe and have stable outlooks, indicating balanced upward and downward rating pressures. Members ratedlower than Aa1 have a relatively small impact on the creditworthiness of NIB as a consequence of their low share of subscribed capital,as well as the bank’s relatively modest exposure of 6.5% to these countries via lending and investments (see Exhibit 2).

2 6 October 2017 Nordic Investment Bank – Aaa stable: Annual credit analysis


Exhibit 2

Largest share of subscribed capital, loan book and investments relate to Aaa-rated member countries

MemberYear of

Joining

Rating/

Outlook

Subscribed

Capital, EUR bn

% of Total

Subscribed CapitalLending, % Treasury, %

Total Lending and

Treasury, %

Sweden 1975 Aaa stable 2.123 34.6 27.0 15.9 23.5

Norway 1975 Aaa stable 1.321 21.5 22.4 3.3 16.4

Denmark 1975 Aaa stable 1.294 21.1 7.2 15.6 9.9

Finland 1975 Aa1 stable 1.088 17.7 22.2 10.9 18.6

Lithuania 2005 A3 stable 0.120 2.0 3.4 0.0 2.3

Latvia 2005 A3 stable 0.082 1.3 1.3 0.6 1.0

Iceland 1975 A3 stable 0.058 0.9 3.4 0.0 2.3

Estonia 2005 A1 stable 0.056 0.9 1.2 0.0 0.8

TOTAL -- -- 6.142 100 88.0 46.2 74.9

Note: Lending exposure includes loans outstanding and loans agreed but not yet disbursed, without taking into account any collateral or other credit enhancement.Sources: NIB, Moody's Investors Service

The bank has consistently held to its strategy of directing as much of its lending as possible towards furthering its dual mandate:enhancing members' economic competitiveness and promoting environmental sustainability. It has kept to this strategy even throughthe challenging years of the 2007/2008 financial crisis and the peak of the European sovereign debt crisis mid-2012. In 2016, the shareof the bank’s loans that reached a “good” or “excellent” mandate fulfilment was 96%.1

The bank’s capital and lending exposure is roughly proportional to the size of member economies. Sweden, the biggest economy in theregion, accounted for the largest share of subscribed capital (34.6%) and lending (27.0%), while the Baltic countries had an aggregatedshare of only 4.2% of subscribed capital against their 5.9% share of lending at the end of 2016. In support of its mandate, NIB hasorganised its lending operations into key areas: the environment and energy, infrastructure, transport and communications, industryand services. These areas encompassed 83% of all loans agreed in 2016.

Strategy revamp will broaden lending activities

To increase the bank's relevance within the Nordic-Baltic region, NIB initiated a review of its strategy in February 2014. It concludedthe review in March 2015 and began to implement its updated strategy in 2016. The review covered all aspects of the bank’s activities,including its mission, lending operations, capital and liquidity. The main results of the review were: (1) to maintain NIB's core strategyof directing its lending as far as possible towards its dual mandate of enhancing the competitiveness of members' economies andpromoting environmental sustainability; (2) to expand lending operations to SMEs and mid-sized corporates in member countries; (3)to maintain lending in non-member countries that supports members’ priorities, with the aim of increasing the share of non-memberlending to around 20% of the total lending portfolio; and (4) to use any opportunity to better integrate member countries and Arcticregion projects.2 The new initiatives aim to further increase the diversification of NIB’s loan portfolio.

Overall NIB exceeded its performance targets in 2016 and the high stock of projects in the pipeline point to continued strongdevelopment in 2017. NIB's lending activities expanded more strongly than planned with a higher share of loans fulfilling its mandate.In particular, more lending was channeled to the public sector in member states. The public sector's share of total lending rose to25% at end-2016 from 21% at end-2015, reducing the riskiness of total lending (see Exhibit 3). Additionally, demand from the Arcticregion and investments in green bonds were stronger than planned. However, lending to the Baltic members was weaker than planned.Lending to SMEs and mid-sized corporates was also weaker than planned, which may be explained by a recovery in lending fromcommercial banks. Lending to non-member countries as a share of total lending fell to 12%, caused by the strong expansion of lendingto member states as well as reduced lending to non-member states.



Exhibit 3

Increased lending to the public sector has reduced the riskiness of total lendingTotal lending by rating class, % of total lending

0

5

10

15

20

25

30

35

Aaa-Aa1 Aa2-Aa3 A1-A2 A3-Baa1 Baa2-Baa3 Ba1 Ba2-Ba3 B1 B2-Caa3 Ca-C

2012 2013 2014 2015 2016


Overview of operations

NIB is a profit-making (though not profit-maximising) institution charging market interest rates on loans generally extended toborrowers within member countries. At 88% of total lending (end-2016, 84% end-2015), the membership portfolio comprises by farthe largest proportion of NIB’s lending exposure. NIB's loan book within member countries retains strong asset quality largely becauseof the institution's concentration on well-established companies, careful due diligence and vigilant project monitoring. Early in thebank’s history, a large proportion of NIB's loans within member countries was extended directly to governments, municipalities andparastatals that had central government guarantees. However, such loans represented about one-fourth of total lending at end-2016.The dominant share of NIB’s loans is extended directly to companies or lent to banks or guaranteed by banks. As a rule, the bank doesnot finance more than 50% of the total cost of any single project to make sure that its operations are additional to, and not crowdingout, the private sector. Additionally, NIB focuses exclusively upon providing long-term financing, thereby complementing, for example,commercial banks. In lending to SMEs and mid-sized corporates, NIB finances up to 75% of the project or financing needs, fulfilling itsmandate criteria. For loans to the private sector, NIB is not treated differently from any other creditor in the bankruptcy or insolvencyof the borrower. To reduce concentration risk, the bank places limits on its exposure to any one counterparty, sector or country. Creditexposure is continuously monitored by an independent risk management unit.

NIB has no formal policies dictating the distribution of lending within and among member countries. As a top-rated issuer, NIB hasbenefitted from the low interest rate environment as its funding costs have fallen to historic lows. Therefore, its net interest incomehas remained roughly stable as a consequence of increased borrowing and only a slight decrease in the margin on loans outstanding.NIB has also maintained superior asset quality by charging risk-appropriate interest rates on its loans. Total net outstanding loans as ofthe end of 2016 amounted to €16.6 billion, up from €15.6 billion in 2015 and €15.2 billion in 2014. The 6% increase from end-2015 toend-2016 was driven by higher lending to borrowers in member states (+11%), with Sweden taking the largest share (41%), followed byNorway (31%). Outstanding lending to borrowers in non-member countries decreased 20%, largely driven by Russia as a consequenceof sanctions. More than two thirds of new loans by value went to first-time NIB customers, which might make maintaining the qualityof the loan portfolio more challenging.

In 2016, the bank signed 58 loan agreements, invested in eight green bonds worth a total of €4.4 billion and disbursed a record €3.4billion, up from €2.7 billion in 2015. The environment and energy was the business area that received the largest share of agreed loans(including green bond purchases), followed by infrastructure, transport and communications, industry and services, financial institutionsand SMEs. NIB also began its green bond programme, investing €143 million in bonds issued by companies and municipalities inmember countries out of the €500 million it had allocated to this new framework. Additionally, NIB made its first loans under theArctic Financing Facility and to midcap borrowers with volumes of €197 million and €50 million, respectively.

In the 1980s NIB began lending to borrowers outside the member region for long-term projects deemed to be of mutual interest tocompanies or financial institutions based in member countries, and sometimes to the governments of those countries. Such loans have



been increasingly concentrated in neighboring countries in recent years. Lending to non-member countries is channelled through twoconduits: the €4 billion project investment loan (PIL) facility and the €300 million environmental loan facility (MIL). A number of loanshave also been extended through NIB’s ordinary lending programme. A prerequisite for NIB being active in a non-member countryis a framework agreement between NIB and the non-member country, which guarantees the legal status of NIB as an internationalorganisation and an international financial institution, which includes acknowledgment of NIB's preferred creditor status. Activitiesin non-member countries are typically driven by either an activity's importance for a corporation located in a member country orby environmental considerations. To minimise the risk of operations in non-member countries, NIB usually cooperates with otherinternational financial institutions to benefit from their expertise in the relevant foreign market. Thus, financing in non-membercountries is usually either co-financed with or financed through other international financial institutions.

Member countries guarantee loans under both facilities: 90% in the case of the PIL facility, and up to a total amount of €1.8 billion and100% under the MIL facility. That said, the bank will cover 100% of any losses under an individual PIL loan from the special credit riskfund for PIL and can call on PIL guarantees once that fund has been used. At year-end 2016, NIB’s largest lending exposure outside itsmember countries was Poland (3.2% of gross loans), Brazil (1.7%), China (1.6%) and India (1.4%).

Financial results for the period from January to April 20173 point to a continuation of NIB's strong financial performance and furtherexpansion of the bank's operations. Net profit for the period more than doubled to €110 million compared with the same period a yearearlier, being strongly influenced by unrealized gains on financial operations that will reverse when the underlying financial transactionsreach maturity. Excluding those temporary effects of financial operations, net profit increased to €75 million for January-April 2017from €54 million for January-April 2016. Thanks to a full project pipeline, the bank managed to disburse €781 million, compared with€627 million for the same period a year earlier, with demand for long-term financing from the municipal sector as the main driver ofthe increase. The loan book expansion was supported by high demand for NIB's debt. In the first four months of 2017, NIB carried out32 new funding transactions, raising €2.5 billion. This already equals more than half its funding plan for full-year 2017.

We expect the favourable macroeconomic environment in the Nordic-Baltic region to continue supporting NIB's performance.Following a period of weak real GDP growth between 2012 and 2014, the region's economic expansion stabilised around 2% inreal terms and we expect the pace to remain roughly unchanged in 2017 and 2018.4 At the same time, we expect total corporateinvestments in the member states to continue their moderately upward trend and the unemployment rate to decline (see Exhibit 4).

Exhibit 4

NIB's macroeconomic environment is favourable% change (left axis), % of GDP (right axis)

0

5

10

15

20

25

30

-6

-4

-2

0

2

4

6

8

10

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F

Real GDP (% change) (lhs) Unemployment Rate (%) (lhs) Gross Investment/GDP (rhs)

Note: Economic indicators are weighted by the share of callable capitalSources: NIB, National authorities, IMF, Moody's Investors Service



CREDIT PROFILEOur determination of a supranational’s rating is based on three rating factors: capital adequacy, liquidity and strength of membersupport. For MDBs, the first two factors combined form an assessment of intrinsic financial strength, which provides a preliminaryrating range. The strength of member support can provide uplift to the preliminary rating range. For more information please see ourSupranational Rating Methodology.

Capital adequacy: Very HighVery high asset quality outweighs relatively high leverage

Scale

+ -

Very LowVery High High Medium Low

Capital adequacy assesses the solvency of an institution. The capital adequacy assessment considers the availability of capital to

cover assets in light of their inherent credit risks, the degree to which the institution is leveraged and the risk that these assets

could result in capital losses.

Factor 1

NIB’s capital adequacy is assessed as “Very High”, reflecting its well-diversified portfolio, its very sound asset quality (with very fewnonperforming loans both currently and historically) and one of the highest average borrower ratings among the international financialinstitutions that we rate. At the same time, the assessment takes account of NIB’s moderate asset coverage by equity and its relativelyhigh leverage.

NIB's robust capital position is characterised by modest capital coverage and very high credit quality

Capital adequacy is one of the key factors in our assessment of an MDB's credit quality. A key ratio in assessing an MDB's capitalposition is the asset coverage ratio (ACR), defined as a bank's usable equity as a percentage of development operations (both lendingand equity investment) and treasury assets.

NIB's ACR of 19.8% as of end-2016 is one of the lowest among the MDBs we rate, but it is appropriate in our view given the bank's veryhigh borrower quality. At a three-year average of Baa2 in 2016, NIB's weighted average borrower rating (WABR) is the highest amongall the MDBs we rate (see Exhibit 5). As such, NIB does not need to carry high levels of capital to offset the riskiness of its lendingand investment operations, as other, lower rated MDBs do. Other MDBs sharing this credit feature with NIB are Council of EuropeDevelopment Bank (CEB, Aa1 stable) and Eurofima (Aa1 stable). Their ACRs are at similarly low levels of 20.3% and 10.0%, respectively.

Exhibit 5

NIB's low level of usable equity relative to development operations is offset by its high quality of borrowersWeighted average borrower rating, asset coverage ratio (3-year average)

CEB (Aa1)

NIB (Aaa)

Eurofima (Aa1)0

20

40

60

80

100

120

140

160

8 9 10 11 12 13 14 15 16 17

Asse

t C

ove

rag

e R

atio

(%

)

Weighted Average Borrower Rating

Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1

Sources: MDBs' financial statements, Moody's Investors Service



https://www.moodys.com/credit-ratings/Council-of-Europe-Development-Bank-credit-rating-207477


https://www.moodys.com/credit-ratings/Eurofima-credit-rating-207465


While the WABR has been stable over the last decade, between Baa2 and Baa3, the ACR has increased substantially during the sameperiod. Standing at only 13.2% as of year-end 2008, it increased significantly as a result of a gradual increase in usable capital, drivenby the gradual accumulation of funds on general credit risk reserve (also called the general reserve fund). The general reserve fund wascreated to cover “unidentified, exceptional losses” and it accumulates funds via an allocation of profits. NIB has a track record of solidprofits, which ranged between €209 million and €217 million per year during the five years. Similarly, NIB's return on average assets hasbeen very stable, in the tight range of between 0.7% and 0.9% over the past five years.

Exhibit 6

Accumulation of profits in the general reserve fund has significantly improved NIB's capital position€ billion

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2008 2009 2010 2011 2012 2013 2014 2015 2016

Paid-in capital Retained earnings / accumulated loss Capital Reserve General Reserve Special Reserve


Apart from the general reserve fund, the bank's reserves accumulate in two other reserve funds: the special credit risk fund for the PILfacility and the statutory reserve, also known as the capital reserve. Like the general reserve fund, the former is a credit risk fund andaccumulates funds through the allocation of profits. In contrast, funds in the statutory reserve are set aside after profit allocation tothe credit risk funds until the statutory reserve reaches 10% of NIB's subscribed authorised capital. After reaching 10%, the board ofgovernors decides on profit allocation to the general reserve fund and dividend payments. The statutory reserve stood at 11% of thebank's subscribed capital at year-end 2016.

NIB's excellent asset performance reflects high borrower quality and prudent lending criteria

NIB's very high borrower quality, coupled with its very high lending standards, is mirrored in its exceptional asset performance. Theshare of nonperforming loans relative to the total loan portfolio amounted to 0.7% at end-2016.5 In terms of asset quality, NIBoutperforms most of the MDBs we rate, but also compares favorably with its Aaa peers. NIB held three nonperforming PIL loansamounting to €118.6 million at end-2016, which is 8.6% below the previous year's level.

The bank's track record of exceptionally low NPL levels is underpinned by its prudent risk management framework. Throughout NIB’smore than 40-year history, management has consistently followed careful procedures that have enabled it to avoid credit, interestrate, exchange rate, maturity mismatch and other risks. Indeed, it has had very few nonperforming loans over its history as a resultof its preferred creditor status, careful project selection and close loan monitoring. Additionally, NIB usually cooperates with otherinternational financial institutions to benefit from their expertise in specific foreign markets to minimise its lending risk.

NIB’s normal financial practices include conservative policies with regard to lending, asset-liability management and liquidity. The bankhedges its foreign exchange risks to the greatest extent possible and has formulated strict guidelines to minimise counterparty risk. Aspart of its asset-liability management, it maintains an active risk management system governing both lending and treasury operations.The onus for risk management lies solely with the bank since, as an MDB, it is not subject to any national or international regulatory orsupervisory authority. As a consequence, NIB can also not rely on a central bank as lender of last resort.

NIB continually refines the methods through which it implements its controls. The bank uses model-based approaches to simulateportfolio risk and to conduct stress tests alongside more traditional strategies, including a Merton-type model that it uses to identify



capital at risk for each loan transaction. For internal purposes, NIB uses a 20-grade risk classification system (with investment gradecomprising grades 1-10). The system assesses not only the risk of default but the projected loss-given-default (LGD) as well.

Exhibit 7

NIB's nonperforming loan ratio is very low, roughly in line with the Aaa-Aa1 rated medianNonperforming loans as % of total loans, 2016

0

1

2

3

4

5

6

EBRD(Aaa)

IFC(Aaa)

AfDB(Aaa)

IDA(Aaa)

IIC(Aa1)

IsDB(Aaa)

NIB(Aaa)

EIF(Aaa)

CDB(Aa1)

IADB(Aaa)

IBRD(Aaa)

Aaa-Aa1median

EIB(Aaa)

CEB(Aa1)

NADB(Aa1)

ADB(Aaa)

Eurofima(Aa1)

EFSF(Aa1)

ESM(Aa1)

EU(Aaa)

IFFIm(Aa1)


In view of its history of a very low level of loan losses and payment arrears, NIB has not instituted significant provisions against its loanbook. Indeed, until recently NIB made only specific provisions against possible loan losses based on its own internal credit assessmentsand models. However, in 2012, new management at NIB decided to start setting aside general provisions for collective impairments.After setting aside provisions worth €40 million in the first year, some €3.2 million in collective impairments were reversed in 2013.Total provisions for impairments, both collective and specific, amounted to €139 million at year-end 2016 (down from €192 million atyear-end 2015). The bank called the MIL guarantee in May 2016 and received payment against one nonperforming loan totaling €14.8million, extended to finance a project in eastern Ukraine under the MIL facility.

Leverage is more pronounced than for its peers

At year-end 2016, NIB's leverage (gross debt as a percentage of usable equity) stood at 730%, and was substantially higher than theleverage of most of the MDBs we rate (see Exhibit 8), except the European Investment Bank (EIB, Aaa stable), Eurofima (Aa1 stable),and Council of Europe Development Bank (Aa1 stable). The leverage ratio increased from 651% in 2013, but remained well below levelsrecorded over the 2008-2010 period (926% on average).

Exhibit 8

NIB's leverage is second highest among Aaa-rated peers, and one of the highest among the MDBs we rateDebt as % of usable equity, three-year average

0

200

400

600

800

1000

1200

1400

EIB

NIB

IBR

D

AD

B

IAD

B

AfD

B

EB

RD

IFC

IsD

B

IDA

EIF

Eu

rofim

a

CE

B

NA

DB

CA

F

AP

ICO

RP

IIC

ICD

ES

M

CD

B

FLA

R

CA

BE

I

AF

C

BS

TD

B

GIC

Gu

ara

ntC

o

BO

AD

ED

B

IIB

AF

RE

XIM

EA

DB

PT

A

Sh

elte

rA

friq

ue

Aaa Aa A Baa Ba andbelow



https://www.moodys.com/credit-ratings/European-Investment-Bank-credit-rating-270400?emsk=2&isMaturityNotDebt=0&isWithDrawnIncluded=0&emvalue=European%20Investment%20Bank




Capacity to increase usable equity internally is ample

As a profit-making (though not profit-maximising) institution, NIB's ability to raise usable capital and therefore limit its leverage ratiois higher than for other MDBs, whose mandates usually imply low levels of profitability (see Exhibit 9). NIB's net profit was stable overthe last five years, amounting to between €209 million and €217 million, with the lion's share of earnings derived from lending activity.NIB, which charges risk-appropriate rates on its loans, is more resilient to the low interest rate environment than other MDBs targetinglow-cost financing. As such, NIB's net interest income has been very stable in the past, around €245 million during the last five years(see Exhibit 10).

Exhibit 9

NIB's return on average assets is relatively high compared withpeers%, 3 year average, Aaa - Aa1 peers

Exhibit 10

NIB's net interest income is roughly stable in spite of the prevailinglow-interest rate environment€ billion

-1 0 1 2 3 4 5

IDA (Aaa)

IBRD (Aaa)

AfDB (Aaa)

AfDB (Aaa)

EFSF (Aa1)

Eurofima (Aa1)

EBRD (Aaa)

ESM (Aa1)

CEB (Aa1)

Aaa - Aa1 median

EIB (Aaa)

IIC (Aa1)

IADB (Aaa)

IFC (Aaa)

NIB (Aaa)

NADB (Aa1)

CDB (Aa1)

IsDB (Aaa)

EIF (Aaa)


2008 2009 2010 2011 2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

2008 2009 2010 2011 2012 2013 2014 2015 2016

Net Interest Income Interest Income Interest Expense


In 2016, NIB's net income stood at €212 million, of which €55 million was paid out in dividends and the remainder was used toincrease the general credit risk reserve and the special credit risk fund, increasing equity by 4.1% year-on-year to €3.3 billion at year-end 2016.

Thanks to its ability to generate profits NIB was able to gradually strengthen its equity position, which increased significantly within thelast decade, to €3.3 billion in 2016 from €2.0 billion in 2006 (see Exhibit 11). As such, despite a very strong increase in the stock of debt(around 70% between 2006 and 2016), the leverage ratio in 2016 is at similar level to 2006, at around 730% and 680%, respectively(see Exhibit 12).

Exhibit 11

NIB's robust profits have boosted its reserves, strengthening thebank's capital base...Net income, € million

Exhibit 12

...but higher borrowings in the last three years increased theleverage ratioUsable equity, debt (€ billion, left hand scale), leverage (%, right handscale)

-600

-500

-400

-300

-200

-100

0

100

200

300

400

500

2008 2009 2010 2011 2012 2013 2014 2015 2016

Loan loss provisions Administrative, general, staff

Depreciation & amortization Non-interest income

Interest income Net income


0

200

400

600

800

1000

1200

-25

-20

-15

-10

-5

0

5

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Usable equity (lhs) Debt (lhs) Leverage (rhs)




Over the medium-term rating horizon, we expect NIB's strategy of loan book expansion to continue to limit its ability to bring downthe leverage ratio. In 2016, NIB's operations exceeded expectations in terms of lending volumes, which reached a record high of €4.4billion in agreed loans, and €3.4 billion in disbursed loans. NIB's new lending initiatives, such as the green bond purchasing programme,Arctic facility and increased lending to mid-cap borrowers will most likely keep lending expanding in 2017.

NIB's ability to increase equity could be limited if net profits were to decrease. A potential pickup in lending from other market playersin the Nordic region would depress interest margins, dragging on NIB's ability to increase equity via profits accumulation.

Low portfolio concentration enhances NIB’s capital adequacy assessment

In our assessment of capital adequacy, we take into account an MDB's portfolio concentration, operating environment, profitability,history of nonperforming loans and other factors to help assess capital adequacy, as well as an institution’s capital position, leverageand asset performance. With regard to portfolio concentration, we analyse the share of the largest exposure in the lending portfolioand assess the concentration (as measured by the Herfindahl-Hirschman Index) of MDB's loan portfolio on a country and sector level,as well as by geographical region.

At year-end 2016, NIB’s top 10 loan exposures accounted for around 18% of total loans outstanding, which is low according to ourmethodology and leads to a positive adjustment for NIB’s capital adequacy. Internal guidelines limit the bank to lending no morethan 20% of total equity (its paid-in capital plus general reserves and the special credit risk fund for PIL loans) to any one privatesector borrower (although mergers of NIB's clients have at times caused this limit to be breached). Each borrower is evaluated on aconsolidated basis including contingent liabilities.

The bank has a relatively well-diversified loan portfolio at the country and sector level (see Exhibits 13 and 14). However, thegeographical distribution by region is relatively concentrated given that the bulk of loans is disbursed in the Nordic region.

Exhibit 13

NIB has a relatively well diversified loan portfolio across sectors …Loan exposure by sector in 2016, as % of gross loans

Exhibit 14

...and countriesLoan exposure by country and region in 2016, as % of gross loans

Public Sector 25%

Utilities23%

Industrials19%

Financials12%

Materials6%

Consumer staples5%

Consumer discretionary 3%

Health care3%

Others4%


Sweden28%

Norway23%

Finland20%

Denmark8%

Iceland3%

CEE9%

Asia4%

South America2%

CIS1%

Others2%




Liquidity: Very HighVery good market access and wide investor base

Scale

+ -

A financial institution’s liquidity is important in determining its shock absorption capacity. We evaluate the extent to which liquid

assets cover debt service requirements and the stability of the institution’s access to funding.

Very High High Medium Low Very Low

Factor 2

We assess NIB’s liquidity as “Very High” due to its very good market access, including a well-diversified investor base by type andgeography. Our assessment also takes into account NIB's high debt service coverage by liquid assets, the majority of which are veryhighly rated.

NIB’s robust liquidity position is underpinned by its prudent policies

Liquidity plays an important role in the credit assessment of MDBs, because MDBs – with the exception of the European InvestmentBank (Aaa stable) – are not eligible for emergency funding from a central bank. In line with most of the MDBs we rate, NIB'scommitment to maintain a strong liquidity position is outlined in its policies and approved by the board of directors. It aims tomaintain liquidity sufficient to meet all operating and refinancing requirements for the ensuing 12-month period, while the minimumrequirement stands at nine-month coverage. It bases its liquidity planning on projected cash flows from all assets and liabilities as wellas planned loan disbursements and repayments. The assets used for the purpose of the calculation must fulfil requirements regardingminimum internal rating and a major portion must be central bank repo eligible, as well as qualify as high quality liquid assets (HQLA)under the Basel III definition. According to this policy, NIB's liquidity ratio, also called “survival horizon”, stood at 121% or 443 days atthe end of 2016.

Furthermore, NIB’s internal liquidity risk management focuses on two prudential ratios, which are embedded in the Basel Accords:the liquidity coverage ratio (LCR)6 and the net stable funding ratio (NSFR).7. The LCR covers a 30-day period and the NSFR a one-year period, and both ratios must remain at or above 100%. At year-end 2016, NIB’s LCR and NSFR ratios stood at 3500% and 160%,respectively, and thus in compliance with Basel III.

An increased stock of collateral has further strengthened NIB's liquidity position

To assess NIB's liquidity position, we analyse the debt-service coverage ratio (DSCR), which is the sum of the three-year average of thestock of short-term and currently maturing long-term debt in relation to the stock of discounted liquid assets. Since its peak in 2010,the ratio has improved, dropping to 47% in 2016 from 91% in 2010 (see Exhibit 15). The DSCR's fall last year was mostly driven by a26% increase in liquid assets, related to stocking up of securities received as collateral. NIB's debt-service coverage ratio is in line withthe median of other Aaa-rated MDBs.


https://www.moodys.com/credit-ratings/European-Investment-Bank-credit-rating-270400

https://www.moodys.com/credit-ratings/European-Investment-Bank-credit-rating-270400


Exhibit 15

Debt service ratio has been fallingDebt-service coverage ratio: (short-term debt + currently maturing longterm)/ discounted liquid assets, Aaa-rated peers

Exhibit 16

Sharp increase in liquid assets in 2016Treasury portfolio, € billion

ADB

AfDB

EIB

IADB

IBDR

IFC

IsDB

NIB

0

20

40

60

80

100

120

140

2010 2011 2012 2013 2014 2015 2016 3-Yr Avg


0

2

4

6

8

10

12

2012 2013 2014 2015 2016

Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2


Treasury portfolio is highly liquid and highly rated

NIB's liquid assets increased substantially in 2016 for the second year in a row. As of year-end 2016, NIB’s treasury portfolio amountedto €11.1 billion, up from €8.8 billion in 2015 and €7.2 billion the year before. As such, the stock of liquid assets increased by 54%over the last two years. The treasury portfolio is highly liquid, with almost 40% of assets held as cash in short-term money marketinstruments, and 60% in securities with longer maturities. It is also very highly rated. In 2016, 74% of the total treasury portfolio wasinvested in Aaa - Aa3 rated assets (see Exhibit 16).

Very high bond implied rating and global investor base show NIB's ample ability to raise funds

We measure the stability of NIB’s access to funding by looking at market-based measures of default risk, specifically the bond-impliedrating. The bank’s average bond-implied rating for the past seven years has been Aa1, reflecting NIB's stable and uninterrupted accessto funding. That said, NIB's bond implied rating of Aa1 remains below our issuer rating of Aaa, implying the extra premium required byinvestors to hold NIB's bonds.

NIB has an established market presence, which is reflected in its varying currency, maturity and liquidity mixes based on investorpreferences and market circumstances. In 2016, Europe (including the Nordics) and the Americas were the two largest investor basesfor NIB's funding, having bought 58% and 20% of the bonds sold by the bank, respectively, followed by Asia (14%), Japan (2.9%),Australia & New Zealand (2.4%) and Africa & Middle East (2.2%) (see Exhibit 17). The distribution of NIB's new funding amonginvestors in 2016 was similar to 2015, with banks remaining the largest investor by category (buying 38% of the new issuance),followed by pension and insurance funds (25%), central banks and official institutions (21%) and asset managers (12%), with theremainder of the demand divided between corporate and retail investors.



Exhibit 17

NIB has a global investor base2016 borrowings, breakdown by investor base and currency


Demand for NIB's securities (and therefore the bank's access to the funding) is additionally supported by their classification in the BaselIII framework as a high quality liquid asset (so-called Level 1 liquidity), which implies zero risk rate.

The bank uses swaps extensively to better match its funding to its lending requirements and to mitigate exchange rate, interest rateand other risks. Already low, funding costs effectively shrink further after the bank’s use of swaps. The bank typically follows a strategyof creating US dollar-denominated benchmark liabilities while simultaneously maintaining broad investor and currency diversification.At year-end 2016, outstanding borrowings were denominated in 18 currencies.

NIB Environmental Bond (NEB) framework supports its environmental mandate and further diversifies its investor base

NIB issued an equivalent of €763 million of environmental bonds in 2016, which increased the total value of securities issued under theNEB framework to €2.1 billion. Since the programme's inception in 2011, NIB has financed 45 projects, which mostly focus on areas ofrenewable energy, wastewater treatment and transportation. Additionally, NIB started the framework for investing in green bonds aspart of its updated strategy highlighted above. We view the bank's commitment to the green bond market as credit positive, because itfurther broadens and diversifies NIB's investor base.



Strength of member support: ModerateHigh share of callable capital by highly rated members balances very high debt stock

Scale

+ -

Contractual support primarily manifests itself in the callable capital pledge, which is a form of emergency support. Extraordinary

support is a function of shareholders’ ability and willingness to support the institution in ways other than callable capital. Strength of

member support can increase the preliminary rating range determined by combining factors 1 and 2 by as many as three scores.


Factor 3

We assess NIB’s strength of member support as “Medium” due to weaker contractual support compared to its peers, as reflected in alower coverage of debt stock by callable capital. Strength of member support is bolstered by a very high ability to support, reflected ina weighted median shareholder rating of Aaa, the highest rating among the MDBs we rate. Our assessment is further bolstered by thestrong willingness of shareholders to support NIB. The assessment also reflects a relatively high correlation between NIB's membersand its assets.

Share of paid-in capital is lower than peers, but the mechanism of calling capital is well defined

As is true for most MDBs, a large part of the capital contributions made by NIB’s members is in the form of callable capital which,in NIB's case, amounts to around 93% of the bank’s total subscribed capital, while the paid-in contribution is just 7%. This positionsNIB unfavourably compared with most MDBs, which enjoy ratios of 10% to 30%, but very favourably to some other MDBs, such asInternational Development Association (Aaa stable) and International Finance Corporation (Aaa stable), which do not have callablecapital at all.

We consider NIB's mechanism to call capital to be very transparent and robust. According to Section 4 of NIB's constituent documents,the capital can be called to the extent that the board of directors deems it necessary for the fulfilment of the bank’s debt obligations.Although the timeline for such payment is not specified in the bank's statute, the timelines of the potential payments have beenconfirmed in writing though formal legal opinions with the relevant ministries of member countries. Taking account of the differentcountry-specific procedures and capital commitments, payment of over a half of callable capital would take place within one monthand close to full payment within 6 months.

In addition, NIB’s member countries guarantee the special loan facilities, PIL and MIL, in proportion to their gross national incomes. ThePIL facility amounts to €4 billion and the member countries guarantee loans under this facility up to a total of €1.8 billion. The bankwill assume 100% of any losses incurred under a PIL loan up to the amount available at any given time in the special credit risk fund forPIL. Only thereafter would the bank be able to call the guarantees of member countries. The MIL facility amounted to €300 million asof end-2016. The bank made a call under the guarantee in May 2016 and received payments on the MIL loan extended to a Ukrainianborrower. Member countries guarantee 100% of loans outstanding under this facility. Callable capital and guarantee obligation is anexplicit, irrevocable and unconditional obligation for each shareholder. However, a potential failure by any member country to makepayment on any such call or guarantee would not transfer the responsibility for such obligation onto other member countries.

In 2016, the board of governors decided on a proposal from the board of directors to review, adjust and align the subscribed capital ofNIB. While the total amount of subscribed capital remains unchanged, the alignment of each member's share of paid-in capital and theguarantees for PIL and MIL with the share of subscribed capital changes the current distribution of paid-in capital, callable capital andthe PIL and MIL guarantees among the member countries. The changes entered into force in 2017 after the completion of the approvalor ratification process. The largest redistributions for paid-in capital and PIL guarantees took place for Sweden and Norway, and for theMIL guarantee Denmark and Norway (see Exhibit 18).


https://www.moodys.com/credit-ratings/International-Development-Association-credit-rating-824671766

https://www.moodys.com/credit-ratings/International-Finance-Corporation-credit-rating-2391

https://www.nib.int/filebank/2032-Constituent_Documents.pdf


Exhibit 18

Alignment of paid-in capital and PIL and MIL guarantees with members' shares of subscribed capital€ million

Paid-in capital (EUR

million)

Re-distribution of paid-in

capital

PIL guarantee

(EUR million)

Re-distribution of PIL

guarantee

MIL guarantee

(EUR million) Re-distribution of MIL guarantee

Sweden 144.7 -14.8 622.1 -48.6 92.0 0.0

Norway 90.0 12.9 387.1 57.8 57.2 2.8

Denmark 88.2 -1.0 379.2 1.4 56.1 -6.1

Finland 74.2 -0.2 318.9 -26.0 47.2 1.6

Lithuania 8.2 1.3 35.1 5.6 5.2 0.8

Latvia 5.6 1.2 24.1 5.0 3.6 0.7

Iceland 4.0 0.0 17.0 1.4 2.5 -0.3

Estonia 3.8 0.8 16.5 3.3 2.4 0.5

Total 418.7 0.0 1,800.0 0.0 266.2 0.0


NIB's constituent documents include in article 18 a robust protection mechanism shielding the bank from a potential, uncoordinatedwithdrawal of a key member state. If a member country intends to withdraw from NIB, it has to notify the government of Norway,which would immediately inform the other member countries, the board of governors and the board of directors of NIB. To proceedwith a withdrawal request, the board of governors must unanimously agree to accept the request. In the case of acceptance, theearliest date the withdrawal could become effective would be the end of the year following the request. The withdrawing membercountry would remain liable for its commitment to NIB in force at the time of the withdrawal. However, we see a potential withdrawalrequest of a key member state as very unlikely, given a roughly proportional distribution of loans to subscribed capital.

Discounted callable capital covers a fair portion of debt

We measure the strength of contractual support using the callable capital coverage of debt stock indicator. Similar to other MDBswith a high leverage ratio, NIB's coverage of debt by callable capital is limited by its relatively high stock of debt. Although NIB's ratioof 419% compares unfavourably with its Aaa-rated peers (see Exhibit 19), it clearly outperforms other highly leveraged Aa-ratedinstitutions, such as Corporacion Andina de Fomento (CAF, Aa3 stable), Eurofima (Aa1 stable) and Council of Europe DevelopmentBank (CEB, Aa1 stable). The fact that 100% of callable capital is pledged by members rated between A3 and Aaa additionally supportsthe stability of the contractual support.

Exhibit 19

NIB's ratio of debt to discounted callable capital is the highest in the Aaa-rated group, but is far lower compared with some Aa-rated MDBswith high leverageDebt/discounted callable capital, 2016

0

500

1000

1500

2000

2500

3000

NIB EIB EBRD IBRD AfDB IADB ADB IsDB CAF Eurofima CEB APICORP CDB IFFIm EFSF NADB ESM

Aaa Aa


Extraordinary support is very likely in the event of need


https://www.moodys.com/credit-ratings/Corporacion-Andina-de-Fomento-credit-rating-600010751





Given that most multilateral lenders have many shareholders of varying creditworthiness, NIB stands out for its extremely high averageshareholder rating of Aaa. Aaa-rated shareholders' (Denmark, Norway and Sweden) share of the subscribed capital remains very highat 77%, though down from roughly 95% before Finland's rating was downgraded to Aa1 in June 2016. This high average rating is veryimportant due to the relatively low (around 7%) share of paid-in capital relative to total capital. This high average rating supports thelikelihood of shareholder support in the event of an emergency, and particularly in the event of perceived systemic risks.

Given the relatively small scale of NIB and the extremely strong creditworthiness of its shareholders, it is highly likely that theshareholders would be in a position to provide financial or other support should NIB need it in the event of a financial emergency.Members' willingness to support NIB in case of need is also demonstrated by: (1) the rapid agreements reached on capital increases;(2) the effective implementation of guarantee procedures related to the MIL loan facility (in 2014 and 2016); (3) the high-levelrepresentation of member states on the bank’s board; (4) the importance to the member states of the bank’s environmental andcompetitiveness mandate; and (5) the importance of the bank’s lending as an adjunct to private sector lending for critical infrastructureprojects. In addition, annual dividend payments by the bank to its shareholders, of around €55 million, strengthen shareholderwillingness to support the bank. The bank may be relatively small, but it “punches above its weight” in the Nordic region, furtherstrengthening member support.

These strengths would also, in our view, bolster the case for prioritising NIB over other multilaterals in which the members are involved.We assess where NIB ranks in terms of support by looking at member countries' commitments to other multinational organisations.NIB's member countries have quite substantial commitments towards European Investment Bank (Aaa stable), InternationalDevelopment Association (Aaa stable), and International Bank of Reconstruction and Development (Aaa stable). NIB comes in fourthplace, which is relatively high given the bank's regional focus (see Exhibit 20).

In addition, although individual members have no responsibility to step in and cover another member country’s obligations in the eventof a capital call, we see it as highly likely that an individual member with a sufficiently strong balance sheet would be willing to dowhatever might be necessary to rescue NIB in an emergency, given the institution’s important role in the region.

Exhibit 20

Commitments to NIB are sizable, but lower than to EIB, IDA and EBRDCommitments of subscribed capital by member countries to institutions, $ billion, 2016

0

2

4

6

8

10

12

14

16

18

20

EIB IDA IBRD NIB AfDB ADB EBRD AIIB IADB CEB IFFIm IFC MIGA Eurofima IIC GuarantCo

Sweden Norway Denmark Finland Lithuania


High correlation between NIB’s members and its assets reduces the strength of member support

Even so, the high correlation between the bank’s members and its assets leads to a negative adjustment to NIB’s score for strength ofmember support. Given that the bank’s lending operations are mainly located within member countries, the capacity of members tofulfil their callable capital commitments may be impaired in a high stress scenario.


https://www.moodys.com/credit-ratings/European-Investment-Bank-credit-rating-270400?emsk=2&isMaturityNotDebt=0&isWithDrawnIncluded=0&emvalue=European%20Investment%20Bank



https://www.moodys.com/credit-ratings/IBRD-World-Bank-credit-rating-410525


Rating rangeCombining the scores for individual factors provides an indicative rating range. While the information used to determine the grid mapping is mainly historical, our ratings incorporateexpectations around future metrics and risk developments that may differ from those implied by the rating range. Thus, the rating process is deliberative and not mechanical,meaning that it depends upon peer comparisons and should leave room for exceptional risk factors to be taken into account that may result in an assigned rating outside theindicative rating range. For more information please see our Supranational Rating Methodology.

Exhibit 21

Nordic Investment Bank - Supranational rating metrics

+ -

+ -

+ -

+ -

Very LowVery High High Medium Low

High Medium Low Very LowVery High


Aaa

Aaa-Aa2


Capital Adequacy

How strong is the capital buffer?

How strong is the institutions' shock absorption capacity?

Sub-Factors: Position, Funding

Assigned Rating:

Strength of Member Support

Intrinsic Financial Strength

Sub-Factors: Capital Position, Leverage, Asset Performance

How strong is members' support of the institution?

Sub-Factors: Contractual Support, Extraordinary Support

Rating Range:

Liquidity

Source: Moody's Investors Service




ComparativesThis section compares credit relevant information regarding NIB with other supranational entities rated by Moody’s Investors Service. It focuses upon a comparison withsupranationals within the same rating range and shows the relevant credit metrics and factor scores.

NIB’s capital adequacy (Factor 1) assessment is “Very High”, which is in line with most other peers. Its below-Aaa-median asset coverage ratio and its significantly above-Aaa-medianleverage is offset by the bank's very sound asset quality with close to zero nonperforming loans both currently and historically. NIB's liquidity (Factor 2) assessment is “Very High”and is in line with its peers, reflecting strong coverage of debt service by liquid assets and very good access to market funding. The assessment of NIB's strength of member support(Factor 3) is lower compared with its rating peers, due mainly to contractual support reflected by callable capital coverage of debt stock, which is significantly lower than the Aaa-rated median.

Exhibit 22

Nordic Investment Bank - Peer table

YearNordic

Investment Bank

International

Bank for

Reconstruction

& Development

European Bank

for

Reconstruction

& Development

Asian

Development

Bank

Inter-American

Development

Bank

European

Investmet BankAaa Median

Rating/Outlook Aaa/STA Aaa/STA Aaa/STA Aaa/STA Aaa/STA Aaa/STA --

Total Assets (US$ million) 2016 31,811 371,260 59,249 125,854 113,325 618,153 59,249

Factor 1 Very High Very High Very High Very High Very High Very High --

Usable Equity/Gross Loans Outstanding + Equity Operations (%)[1] 2016 19.8 21.8 54.1 25.1 32.3 14.5 29.6

Debt/Usable Equity (%)[1] 2016 730.0 494.9 246.3 432.6 303.6 711.6 303.6

Gross NPLs/Gross Loans Outstanding (%)[2] 2016 0.7 0.3 5.6 0.0 0.3 0.1 0.6

Factor 2 Very High Very High Very High Very High Very High Very High --

ST Debt + CMLTD/Liquid Assets (%)[3] 2016 47.1 63.1 59.0 68.9 50.7 96.3 32.8

Bond-Implied Ratings (Long-Term Average) 2010-2016 Aa1 Aaa Aa2 Aa1 Aa1 Aa1 Aaa

Intrinsic Financial Strength (F1+F2) Very High Very High Very High Very High Very High Very High --

Factor 3 Medium Very High High Very High Very High High --

Total Debt/Discounted Callable Capital (%)[4] 2016 419.4 96.1 183.7 62.6 74.8 226.0 77.9

Weighted Median Shareholder Rating (Year-End) 2016 Aaa Aa3 Aa1 Aa3 A3 Aa2 Aa2

Rating Range (F1+F2+F3) Aaa-Aa2 Aaa-Aa2 Aaa-Aa2 Aaa-Aa2 Aaa-Aa2 Aaa-Aa2 --

[1] Usable equity is total shareholder's equity and excludes callable capital[2] Non-performing loans[3] Short-term debt and currently maturing long-term debt[4] Callable capital pledge by member rated Baa3 of higher, discounted by Moody's 30-year expected loss rates associated with ratingsSources: MDBs' financial statements, Moody's Investors Service



DATA AND REFERENCESRating history

Exhibit 23

Nordic Investment Bank - Rating history

Outlook Date

Long-term Short-term

Rating and Outlook Affirmed Aaa P-1 Stable 22 September 2017

Rating and Outlook Affirmed Aaa P-1 Stable 26 August 2014

Short-term Rating and Outlook Assigned P-1 Stable 15 November 2003

Rating Assigned Aaa 21 December 1994

Rating

Source: Moody's Investors Service



Annual statistics

Exhibit 24

Nordic Investment Bank - Balance sheet

2010 2011 2012 2013 2014 2015 2016

Balance Sheet, EUR Millions

Assets

Cash & Equivalents 2,726 2,415 2,817 1,758 1,639 2,666 4,456

Securities 5,231 4,373 5,275 5,373 5,518 6,110 6,600

Derivative Assets 2,718 2,421 2,348 1,309 2,198 2,558 2,157

Net Loans 13,771 14,153 15,131 14,667 15,156 15,627 16,640

Net Equity Investments 0 0 0 0 0 0 0

Other Assets 452 440 412 383 358 350 326

Total Assets 24,898 23,802 25,983 23,490 24,870 27,311 30,178

Liabilit ies

Borrowings 19,944 18,433 20,332 18,421 19,446 20,985 23,907

Derivative Liabilities 1,117 1,026 1,103 1,615 1,329 1,481 1,444

Other Liabilities 1,575 1,887 1,882 623 1,110 1,700 1,551

Total Liabilities 22,636 21,345 23,317 20,659 21,884 24,165 26,903

Equity

Subscribed Capital 4,142 6,142 6,142 6,142 6,142 6,142 6,142

Less: Callable Capital 3,723 5,723 5,723 5,723 5,723 5,723 5,723

Equals: Paid-In Capital 419 419 419 419 419 419 419

Retained Earnings (Accumulated Loss) 211 194 209 217 210 215 212

Accumulated Other Comprehensive Income (Loss) 0 0 0 0 0 0 0

Total Equity 2,262 2,456 2,666 2,831 2,986 3,146 3,275

Sources: Nordic Investment Bank, Moody's Investors Service

Exhibit 25

Nordic Investment Bank - Income statement

2010 2011 2012 2013 2014 2015 2016

Income Statement, EUR Millions

Net Interest Income 234 252 244 239 247 242

Interest Income 430 500 494 404 383 339 312

Interest Expense 196 271 242 160 144 92 70

Net Non-Interest Income

Net Commissions/Fees Income 10 8 8 8 7 10 11

Income from Equity Investments 0 0 0 0 0 0 0

Other Income 42 7 43 19 26 12 23

Other Operat ing Expenses

Administrative, General, Staff 31 33 34 35 37 42 42

Grants & Programs 0 0 0 0 0 0 0

Other Expenses 0 0 0 0 0 0 0

Pre-Provision Income 249 206 265 233 231 218 232

Loan Loss Provisions (Release) 38 12 56 15 21 3 20

Net Income (Loss) 211 194 209 217 210 215 212

Other Accounting Adjustments and Comprehensive Income 0 0 0 0 0 0 -28

Comprehensive Income (Loss) 211 194 209 217 210 215 184

Sources: Nordic Investment Bank, Moody's Investors Service



Exhibit 26

Nordic Investment Bank - Financial ratios

2010 2011 2012 2013 2014 2015 2016

Financial Rat ios

Capital Adequacy, %

Usable Equity / (Loans + Equity) 16.4 17.6 17.9 19.5 20.0 20.3 19.8

Debt/Usable Equity 881.8 750.4 762.7 650.7 651.2 666.9 730.0

Allowance For Loan Losses / Gross NPLS 174.2 N/A N/A 51.5 156.0 17.0 16.8

NPL Ratio: Non-Performing Loans / Gross Loans 0.2 0.0 0.0 0.2 0.1 0.1 0.7

Return On Average Assets 0.9 0.8 0.8 0.9 0.9 0.8 0.7

Interest Coverage Ratio (X) 2.1 1.7 1.9 2.4 2.5 3.3 4.0

Liquidity, %

St Debt + CMLTD / Liquid Assets 91.3 77.2 76.3 67.0 65.5 63.9 47.1

Bond-Implied Rating Aaa Aaa Aa1 Aa1 Aa1 Aa1 Aa1

Liquid Assets / Total Debt 39.9 36.8 39.8 38.7 36.8 41.8 46.2

Liquid Assets / Total Assets 32.0 28.5 31.1 30.4 28.8 32.1 36.6

Strength of Member Support , %

Callable Capital (CC) of Baa3-Aaa Members/Total CC 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Total Debt/Discounted Callable Capital 542.3 326.3 359.9 323.2 341.1 368.2 419.4

Weighted Median Shareholder Rating (Year-End) Aaa Aaa Aaa Aaa Aaa Aaa Aaa

Note that NIB changed its definition of NPLs to align with Basel's definition in 2016.Sources: Nordic Investment Bank, Moody's Investors Service



Moody’s related research

» Credit Opinion: Nordic Investment Bank – Aaa Stable: Update following rating affirmation, outlook unchanged, 22 September2017

» Rating Action: Moody's affirms the Aaa rating of Nordic Investment Bank (NIB); stable outlook, 22 September 2017

» Issuer In-Depth: Nordic Investment Bank – Aaa Stable: Annual Credit Analysis, 24 November 2016

» Rating Methodology: Multilateral Development Banks and Other Supranational Entities, 29 March 2017

To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of thisreport and that more recent reports may be available. All research may not be available to all clients.

Related websites and information sources

» The Nordic Investment Bank (NIB)

MOODY’S has provided links or references to third party World Wide Websites or URLs (“Links or References”) solely for yourconvenience in locating related information and services. The websites reached through these Links or References have not necessarilybeen reviewed by MOODY’S, and are maintained by a third party over which MOODY’S exercises no control. Accordingly, MOODY’Sexpressly disclaims any responsibility or liability for the content, the accuracy of the information, and/or quality of products or servicesprovided by or advertised on any third party web site accessed via a Link or Reference. Moreover, a Link or Reference does not imply anendorsement of any third party, any website, or the products or services provided by any third party.

Authors

Heiko PetersAssistant Vice President – Analyst

Malgorzata GlowackaAssociate Analyst

Endnotes1 NIB reviews all loan projects to assess the extent to which they comply with its mission: improvement of competitiveness and the environment in member

states. It then assigns a mandate rating for both the environmental and economic impact of projects according to a mandate rating system. Ratings rangebetween excellent and negative. NIB also initiated an ex-post mandate assessment in 2016.

2 NIB (March 2015) “NIB concludes a strategy review: more flexibility in lending”

3 Interim Management Statement January to April 2017

4 Economic indicators are weighted by the share of callable capital.

5 Note that NIB adjusted its NPL definition to fall in line with the Basel definition. This increased the number of NPLs at year-end 2015 to five with a volumeof €129.7 million (under the new definition) from €14.8 million (under the old definition).

6 Liquidity coverage ratio describes the amount of highly liquid assets the bank has to cover its net cash outflows over a 30-day period. There are threecategories of high-quality liquid assets which could be used in the computation of the LCR: level 1 (Federal Reserve bank balances, foreign withdrawableresources, securities issued or guaranteed by specific sovereigns and multinational development banks); level 2A (securities issued by other sovereign ormultinational development banks and US government-sponsored enterprises); and level 2B (specific publicly traded common stock and investment gradecorporate debt securities issued by non-financial sector corporations). Assets falling into the 2A and 2B categories are subject to a haircut of 15% and 50%,respectively.

7 The NSFR is defined as the amount of available stable funding (ASF) relative to the amount of required stable funding (RSF). The ASF is defined as theportion of capital and liabilities expected to be reliable over the time horizon considered by the NSFR, which extends to one year



https://www.moodys.com/research/Moodys-affirms-the-Aaa-rating-of-Nordic-Investment-Bank-NIB--PR_371878

https://www.moodys.com/research/Nordic-Investment-Bank-Aaa-Stable-Annual-Credit-Analysis-Issuer-In-Depth--PBC_1044283

https://www.moodys.com/research/Multilateral-Development-Banks-and-Other-Supranational-Entities--PBC_1059755

http://www.nib.int/

http://www.nib.int/news_publications/cases_and_feature_stories/1580/nib_concludes_a_strategy_review_more_flexibility_in_lending

https://www.nib.int/filebank/a/1497347584/2035f9685a868d7b06b6e2cb50642dcf/6573-Interim_Management_Statement_April_2017.pdf


© 2017 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES (“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDITRISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY’S PUBLICATIONS MAY INCLUDE MOODY’S CURRENT OPINIONS OF THERELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITYMAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGSDO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’SOPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVEMODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS AND MOODY’SPUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOTPROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THESUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATIONAND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FORPURCHASE, HOLDING, OR SALE.

MOODY’S CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FORRETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS OR MOODY’S PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACTYOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW,AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTEDOR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANYPERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.

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To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for anyindirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use anysuch information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses ordamages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of aparticular credit rating assigned by MOODY’S.

To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatorylosses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for theavoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents,representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCHRATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.

Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (includingcorporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any rating,agreed to pay to Moody’s Investors Service, Inc. for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintainpolicies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO andrated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually atwww.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s InvestorsService Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intendedto be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, yourepresent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly orindirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion asto the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. It would be recklessand inappropriate for retail investors to use MOODY’S credit ratings or publications when making an investment decision. If in doubt you should contact your financial or otherprofessional adviser.

Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’sOverseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a NationallyRecognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by anentity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registeredwith the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferredstock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for appraisal and rating services rendered by it feesranging from JPY200,000 to approximately JPY350,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page onwww.moodys.com for the most updated credit rating action information and rating history.

REPORT NUMBER 1085615


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