Czech components in Cuba, Hungarian poultry farm and Slovakian energy: just a few examples of the fields in which the International Investment Bank connecting three continents is an active participant. At Planet Budapest, we asked Anna Lvova, the Head of the Department of International Relations and Communications for IBB about the bank’s history dating back to the Comecon countries, and its dynamic future. Interview.
The whole concept of the International Investment Bank comes from the Soviet times, it was established decades ago. In a modern context, what can IBB offer, and what did it offer a few decades ago at the time of its establishment?
I guess we should start from 51 years ago, as you very rightly pointed out, that the bank was established by the Comecon countries back in 1970. At this time the bank had a very particular and specific purpose in realizing and implementing very large infrastructure projects, in all the member states. Some of them we can still witness even today, for example the gas pipelines built and financed by the bank in Hungary. The bank really served its purpose and also promoted the cooperation between the Comecon countries. After the collapse of Comecon, the organization struggled to find its purpose and there was quite a long period of stagnation while it was trying to find its path for the future. In 2012, the shareholders decided to find a new purpose for the institution, and it was quite an intense discussion. However, the institution was given a new lease of life as a multilateral development bank.
What was the intention behind this decision?
I think everybody realized that there was a niche for the institution on the market, as if you look at the shareholder composition, it’s incredibly versatile: you have three continents, nine countries, from Mongolia, to Vietnam and Cuba, to five EU and NATO member states and Russia. All of them historically have very close ties with each other and they realized that they need such an institution to help them promote their cooperation. What happened after was quite a dynamic process in that by the end of 2012, a new team was brought in, and the process was started. Certain things had to be built from scratch because the bank had no clear lending policy, there was no risk management system, there was no compliance, which are all elements that a common financial institution would have. However, things started to develop incredibly quickly. The bank got its first credit ratings, there was a clear lending policy and a new strategy was adopted by the member states very quickly.
In the past, infrastructure was the main focus, what about now?
We are quite flexible in regards to the sectors we work in. Obviously, every single country has their own economic priorities, which we try to negotiate with. To see what priorities are in each sector, we have to closely look at each market. We give a lot of priority to integration projects, which interlink the members. We started to engage in very interesting deals in financing, for example, with large, Western corporations, but with their commitment that they would use our funds to develop their businesses in our member states as that brings additional investment to our countries. We have projects in various sectors, I would say also, depending on the countries and economies: we work heavily in the agricultural sector in food processing, tourism, energy sectors including renewables. We try to look at mid-size projects and companies because we think especially in Europe, that market is heavily under financed as well. Especially now with COVID, quite a lot of commotion and turbulence is happening in financial markets so we try to find our niche and work directly with companies and offer them services at the best rates possible.
Could you give me some specific examples about projects and investments happening in Central and Eastern Europe by IBB?
If we look at Hungary, probably one of the projects I would name was actually very interesting. It was a greenfield project where we financed a construction of a poultry production plant completed in cooperation with the Hungarian government. There was a commercial bank involved which gave a loan to the company and we provided the guarantee, which made the whole deal possible. We were very happy to see our investments work incredibly well, therefore there are currently negotiations with the company to extend our support as they want to expand their production lines. In Slovakia, we are heavily involved in the energy sector, our main client there is Slovenske Elektrarne, it’s one of the main suppliers of electricity in the country. In Romania, we work in the agricultural sector quite heavily. These are just a few examples, and we look forward to expanding operations further in the region.
From the point of view of an international investment banker, what do you think, how strong are the economic and financial ties between the member states?
In our case, first and foremost, the loan portfolio of the bank consists of operations in all nine member states. We work in different conditions in different markets. Our Asian exposures are mostly related to financial institutions, we find local intermediaries, so it’s much easier to know the markets. They know their clients. We’ve had some interesting projects, one where with the help of a Russian leasing company, Czech equipment was transported to Cuba, so in this case, three of our member states were involved. I would also say that there is a lot of interest between the markets themselves, some of them, you know, have been historically there, some of them keep evolving with time. But if you look at the Vietnamese market — which we are assessing at the moment — there’s a very interesting project of a large European corporation that has its production in Vietnam, which they want to expand. These are the opportunities we try to look for and seize. At the moment, integration projects — when the project carries out the interest of two or more member states — in our portfolio constitute almost 25%.
The localization of supply chains is a trend nowadays. European companies, due to the pandemic, not to mention trade wars, are bringing back supply chains to the continent. From the perspective of the International Investment Bank, is it an opportunity or a challenge to be part of this economical transformation?
For a financial institution there are always a lot of challenges, but we always try to turn them into opportunities. The localization of supply chains has been a topic in many countries for many years. Fortunately, or unfortunately, I think we are still a long way from full localization in many cases, including our markets. There’s a certain number of countries among our member states, who find it more challenging to localize than others, and it’s a matter of assessing their needs and the priorities of their economies. It’s incredibly important to keep a constant dialogue with our shareholders to see where they stand and what they’re looking to provide, and to try and do our best to assist them. In some cases, this can be a challenge, but thankfully, currently this is not the case.
The IIB headquarter is based in Budapest. What was the reason behind this? Why here, instead of Moscow?
We spent 49 years of existence in Moscow. What I think, and we’ve commented on this several times, is that it was a very logical step. After the relaunch the bank was breezed, and we had very strong support from the European member states in 2015. At the end, there was a decision made by Hungary which was incredibly encouraging at the time, and the European influence, which could be seen in the share of the paid capital, became more and more visible. The focus started to be more European, even of our investments and operations, and we started to look and work in those markets much more actively. The time came when everybody realized that we could probably serve our countries better from Budapest. Everybody realized that if we move closer to the markets, if we move closer to the investment investors, it would probably be much more beneficial for everybody involved in the bank’s management. Basically, it was a unanimous decision of the nine countries to shift the headquarters, which happened in summer of 2019. What we’re seeing right now is definitely the right decision. For the past two years, since we’ve been in Europe, the loan portfolio grew by 14%, we’ve reached our loan portfolio target of 1.2 billion euros. Within the past two years, our investor base expanded dramatically in Europe, very actively and dynamically. Our tools have expanded in geography, the sectors in the portfolio being diversified. It was an absolute win-win situation for everyone.
Poland was a former member state and Warsaw is the financial capital of Central and Eastern Europe. They have huge skyscrapers, it’s incredible. Is there a chance that they’ll be part of the bank again?
At the moment, there are no talks on the topic with Poland.
Is there willingness from the Polish side?
There’s definitely nothing going yet, but we might be expanding our shareholder base soon.