NIB helps to meet demand for long-term SME financing

“We have several interesting new projects in the pipeline that we hope to sign during the winter of 2014-2015,” says Marjo Harri, Head of Financial Institutions & SMEs at NIB.

SMEs employ two thirds of all employees in the Nordic-Baltic region and contribute a similar share of the added value produced. This is precisely why long-term lending to SMEs is a priority at NIB.

“SMEs enhance entrepreneurship, competition and innovation and they are of great importance for productivity and economic growth in their home countries. Removing obstacles that impede the growth of the SME sector needs to become a priority in their economic policies,” says researcher Lisbet Horslund (see an interview with her).

In 2013, Ms Horslund conducted a study for NIB on the SME sector and its access to financing in the Bank’s member countries. The study estimated that SME portfolios in the banking sectors of the Nordic and Baltic countries were in the range of EUR 102-164 billion in 2013.

“It may seem very large, but, unfortunately, it is not enough and the demand for SME long-term financing, particularly as a result of the crisis, is increasing,” Ms Horslund said then.

NIB’s total outstanding loans to SMEs stood at EUR 657 million at the end of August 2014.

Enterprises considered to be SMEs, in accordance with an EU definition, employ fewer than 250 persons with annual turnover below EUR 50 million or an annual balance sheet less than EUR 43 million. On average, SMEs numerically by this definition accounts for 99% of all enterprises in the Nordic-Baltic region.

Many SMEs in the Nordic-Baltic region need to invest in new technology to increase efficiency and sustainability of their production. NIB seeks to meet this demand by providing long-term financing in cooperation with local financial institutions that already have a focus on SMEs.

“This allows NIB to reach out to SMEs that otherwise would not have been possible,” says Marjo Harri, Head of Financial Institutions & SMEs at NIB.

The intermediary partner banks allocate the funds themselves according to NIB’s requirements, and report to NIB on how much they have extended to different types of projects.

“There is a scarcity of longer-term financial sources for SMEs and NIB has the capability to meet the demand with longer tenors than are otherwise typically available,” says Ms Harri.

NIB broadened its loan offering to SMEs

In 2013, NIB decided to expand its loan offering for onlending to SMEs to include investments in new machinery, production or service provision facilities and investments in ICT and R&D. These project categories came in addition to NIB’s traditional SME onlending that earlier had mainly focused on small-scale environmental and renewable energy projects. The broadened scope of eligible investments has been well received by the onlending banks.

Challenging times

The current investment climate is weak due to a lack of global growth engines. The situation is further made worse by geopolitical concerns hampering opportunities for a European recovery.

While there currently is an abundance of liquidity in the commercial banking sector, the new Basel III regulatory framework is expected to increase the need of long-term stable funding to match the long-term lending.

“NIB can help here because long-term loans are precisely what NIB offers. And ultimately this can make it easier for SMEs to get loans,” says Ms Harri.

In January–August 2014, NIB paid out approximately EUR 70 million in loans to SMEs. In 2013, the disbursements to SMEs in the member countries stood at EUR 171 million.

“We have several interesting new projects in the pipeline that we hope to sign during the winter of 2014-2015,” says Ms Harri.

Ringkjøbing Landbobank: SMEs tapping wind power

In the past five years, NIB and Ringkjøbing Landbobank (RLB) from Denmark have launched four facilities for SME and environmental projects with a combined value of about EUR 80 million.

“The cooperation with NIB that started in 1999 has been one of the contributors to our bank’s success in financing small and medium-sized enterprises, particularly in the area of renewable energy. We have established significant expertise in financing wind turbine projects, which is an important area of our banking activities nowadays”, says Lars Hindø, Executive Assistant at Ringkjøbing Landbobank A/S.

NIB’s loan programmes have become a reliable source of long-term financing, and in 2010–2014 alone they helped to build 54 wind turbines. The total expected annual output of 473 GWh is equal to the consumption of some 45,000 households. The NIB- and RLB-financed wind turbine farms are scattered throughout many parts of Denmark, but concentrated in central and western Jutland, the core region for Ringkjøbing Landbobank.

Ringkjøbing Landbobank is a full-service regional bank that operates mainly in central and western Jutland in Denmark. The bank ranks among the 15 largest banking groups in Denmark in terms of total assets.

Sparbanken Nord: SMEs create varied local economies

In 2013, NIB and Sparbanken Nord signed a EUR 20 million loan programme for onlending to SMEs and environmental investments with the purpose of decreasing greenhouse gas emissions and producing other positive environmental impacts.

“Savings banks normally have access to short-term deposit money. NIB can provide much longer tenors to finance infrastructure development and SME projects. This is extremely valuable for us,” Erik Hägglöv, Chief Executive Officer of Sparbanken Nord.

“Some areas are becoming depopulated for economic reasons if they are not diversified enough. Financing is needed for investments in machinery and equipment, research, ICT, energy efficiency and renewable energy production. These are our priorities. This is why we appreciate NIB’s involvement in providing access to finances for SMEs.”

Sparbanken Nord has 14 branches in ten different municipalities in northern Sweden, and is the third largest independent savings bank in the country. About two thirds of the Sparbanken Nord’s lending comprises loans to households and individuals.

Oulun Osuuspankki: New opportunities for SMEs

Since 2010, NIB and Oulun Osuuspankki have signed two facilities for SMEs with a combined value of EUR 45 million.

“From Oulun Osuuspankki’s perspective, the NIB loan programme fits perfectly with our corporate responsibility, especially now that this region is heavily reliant on entrepreneurs existing and growing their businesses. For us, it is important that we share the responsibility to both society and the environment,” says Helinä Saarela, Bank Manager at Oulun Osuuspankki.

Oulun Osuuspankki’s Sales Manager Jouni Heikkinen agrees: “The loan programme with NIB is a great way to open up new opportunities for the SMEs in this region. Principally, we need more investments made by SMEs in tangible capital, such as machinery and equipment, as that kind of industry didn’t really exist in Oulu previously, when this region concentrated too much around one sector,” says Heikkinen.

So far, Oulun Osuuspankki has utilised NIB funding for financing machinery and equipment investments and various energy efficiency projects to mention a few.

Oulun Osuuspankki has 12 branches in six municipalities, in Oulu and its neighbouring localities in northern Finland. The bank is part of the OP-Pohjola Group and provides banking services to both corporate customers and private individuals.

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