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By Olga Pavuk
Estonian banks, the first to come under Scandinavian influence, were hot on the mark in taking their share of neighboring markets in Latvia and Lithuania. Working with Eastern non-residents still remains an important part of the Latvian banking business. Nevertheless, changes on the Baltic banking market are inevitable, considering adjustments to tax and financial policies in Russia, and tactical moves set to be made by cushy seated Swedish players controlling stakes in major Baltic banks.
Just
a few facts on Baltic banking: Latvia still leads the Baltics by number of commercial
banks, home to 22 banking establishments. Lithuania has 13 registered banks
and foreign branches , while only 7 banks operate in Estonia.
This year's five-month results show total assets of Latvian, Lithuanian and
Estonian commercial banks amounting to 11.82 billion US dollars (in March this
figure topped USD 12 billion, hitting an all time record high). Of the total,
Latvian banks contributed 39.6 percent (USD 4.7 billion), Lithuanian banks 30.5
percent (USD 3.6 billion) and Estonian banks 29.9 percent (USD 3.5 billion).
The top ten largest Baltic banks comprise of 2 banks from Estonia,
and 4 from each of Latvia and Lithuania. Hansapank, the indisputable
absolute leader in the Baltics for recent years, has started feeling the hot
breath of Uhispank and even Vilniaus Bankas on its neck, both
of which now also have assets in excess of USD 10 bln.
The Euromoney magazine has named Parex Bank the best bank in Latvia
for 2001, with similar titles going to Hansapank in Estonia and Vilniaus
Bankas in Lithuania.
Contrary to expectations, Estonia's Hansapank remained the only Baltic
credit institution making it to a list of the world's top 1,000 banks, as determined
by The Banker magazine last year. Hansapank ranked 635th in terms
of equities, up 65 places from the previous year. Among Central and Eastern
European banks, Hansapank took 12th place.
Will the current distribution of powers on the Baltic banking market hold for
long? It seems we'll get the answer to this question after a merger of two top
Swedish banks, announced earlier this year. Swedbank and Skandinavska
Enskilda Banken (SEB), both own decisive stakes in major banks throughout
the Baltics.
On June 1st this year Estonia's Hansapank acquired a
major savings bank in Lithuania, Lietuvos Taupomasis Bankas (LTB), buying
90.73 percent of the bank's shares for 37.5 million US dollars. A statement
was released at the time on the merging of LTB with Lithuania's relatively
small Hansabankas. Formal approval for the deal was obtained from the
Lithuanian Competition Council and the Bank of Estonia. By mid-July the Estonians
had increased their stake in LTB to 98.05 percent in a share buy-out
at the same price they paid to the state - for USD 2.47 at a par value of USD
2.50. Kristina Siimir, Hansapank financial director, assured that the
buy-out of small shareholders would continue. After the merger between LTB
and Hansabankas, Estonians would control nearly one-third of the Lithuanian
banking market.
In July the merged bank was christened as Hansa-LTB. Estonia's Hansapank
decided that the LTB initials were quite appropriate. The new bank's
board chairman, Arunas Siksta, gave the following interpretation for
the bank's new name - the abbreviation LTB is well-known on the Lithuanian
market, many people recognize the name and trust it, while Hansa indicates
who is actually in charge of the bank.
Hansapank has undertaken investments of another 150 million lits ( 37.5 million
USD) towards the LTB share capital over the coming year-and-a-half for
strengthening the bank's capital foundations. Substantial changes are expected,
mostly through the introduction of information technologies. The IT sector is
seen as the weakest point in LTB, while Hansapank, on the contrary,
is very strong in this aspect, in many cases taking the lead in Baltic e-banking.
The Estonians have also vowed to create the most extensive network of bank machines
ATMs across Lithuania by 2004.
Anders Salin, chairman of the Hansapank group council, said at
a press conference in April upon releasing merger plans for the first time:
"Today is a lucky day for the entire Baltic financial system. LTB will
remain a Lithuanian bank while enjoying constant support from Hansapank
and its largest shareholder Swedbank. Our goal is to become the best
by international standards. It is an ambitious plan, and we promise to be strong
competitors."
Chairman of the board at Hansapank, Indrek Neivelt, added: "At
present we are the largest bank in Estonia and the most rapidly growing one
in Latvia. The Lithuanian economy, being the largest in the Baltics, has significant
potential with the greatest of opportunities open for development of the banking
sector. Through the acquisition of LTB we intend to considerably strengthen
our position on the local market".
The merger between Swedbank and SEB, announced
this spring, causes certain problems for the Baltic banks owned by these Swedish
institutions.
In Estonia Hansapank and Uhispank account for nearly 90 percent
of the banking sector's total assets. In Latvia Hansabanka and Unibanka
hold around 50 percent of total resident and private deposits, not including
non-resident businesses. In many rural towns these two banks are the only ones
to have branches there. The same goes for leasing services, as about a half
of the country's leasing portfolio is linked the two banks. Hansabanka
and Unibanka also handle over 50 percent of foreign currency operations
in Latvia.
Swedbank holds 57 percent of the shares in Estonia's Hansapank.
Hansapank in turn holds 97 percent in Latvia's Hansabanka, 100
percent in Lithuania's Hansabankas and 98 percent in Lietuvos Taupomasis
bankas. Skandinavska Enskilda Banken holds 97 percent in Estonia's
Uhispank, 98 percent of Latvia's Unibanka and 98 percent in Lithuania's
Vilniaus Bankas.
A merger between LTB and Vilniaus Bankas, would be against Lithuania's
anti-monopoly law, however, this would also be true for mergers between
Hansapank and Uhispank in Estonia, and Hansabanka and Unibanka
in Latvia.
Will these Swedish controlled Baltic banks be able to retain their independence,
and may one owner even hold two such banks in the same country? It's a disputable
question depending on positions taken by the state. According to Western experts,
it's not exactly the way things should be done in general. The Bank of Estonia
is dead against it, while the central banks in Latvia and Lithuania seem to
have no objections in principle.
Some analysts believe that Swedbank and SEB will be getting rid
of one of their Baltic banking groups. Sweden itself has monopolist trends with
purely Swedish structures (funds, real-estate) taking up to 99 percent of the
local market. A report recently appeared in the Swedish press about the
Swedbank council chairman, Mr. Kollert, and SEB board chairman,
Mr. Tupel, having reached an agreement on SEB cutting jobs in
Sweden, while Swedbank is set to make layoffs abroad - in Singapore and
elsewhere. It is not clear, however, whether this arrangement will apply to
the Baltic States, actually seen by the Swedes as a part of their own market.
The decision on which Baltic bank to keep could largely depend on the choice
for the new Swedish bank's president. Will it be Tupel, seeking the position
for power and money? Or Kollert, for whom the appointment would be rather a
matter of prestige? In fact, it seems that the latter is actually more interested
in the Baltic region.
There is another question concerning the value of these Swedish owned Baltic
banks. The Hansapank group is worth much more than the SEB owned
banking group. According to experts, Hansapank would not be sold at a
price any lower than 13 or 15 billion Estonian kroons (1 billion USD). In the
meantime, the SEB group is valued at no higher than a third of Hansapank's
value at around 2.5-3 billion Estonian croons. Thus it would be safe to say
that the SEB banks are probably the ones set to be put up for sale.
And another thing, Swedbank and SEB are preparing for negotiations
with the European Union's Monopoly and Competition Commission in Brussels. Nevertheless,
the six Baltic banks take up a share of only around 2 percent in the consolidated
balance sheet of Swedank and SEB, and the Baltic states aren't
really able to influence any EU decision yet. There is only one thing to do
- comply with recommendations (read: orders) set by the EU.
The Baltic banks look to end up between two grinding stones, with representatives
from both Swedish banks on one side and the EU and local monopoly authorities
on the other side. Haggling is inevitable with some kind of compromise eventually
found.
And, finally, negotiations between Swedbank and SEB themselves
could determine the fate of their Baltic banks overnight.
This leaves us to speculate over who may possibly replace either one of the
Swedish owners. Here one recalls forecasts made by the Baltic Course
around two years ago on the possibility of a major Swedish bank appearing on
the Latvian market. At the moment of publishing this magazine, Sweden's
Swedbank and Skandinavska Enskilda Banken had declared intentions
on dropping the merger, claiming EU regulations being to harsh. The Baltic banks
can stay calm, for some time, at least...
Many banks seeking to strengthen their positions on the market
are actively looking for a strategic investor. This is mostly true in Latvia
with its 22 banks, largely still working on the accounts of non-residents, foreign
deposits accounting for more than half of the credit portfolio.
July 1st marked the final and irreversible merger between Latvia's Saules
Banka and Rietumu Banka, the latter having bought 100 percent of
the shares in Saules Banka from Estonia's Uhispank in February.
After the merger, Iceland's Islansbanki-FBA (IFBA) announced the acquisition
of a 12.5 percent stake in Rietumu Banka for USD 5.5 mln. Only six months
ago the same bank claimed intentions of buying 56.2 percent in Latvia's Rietumu
Banka. According to the IFBA board director of corporate finances,
Erlandur Magnusson, by acquiring 12.5 percent the Icelanders will get
as much influence in the company (one seat on the council) as the other three
largest shareholders in Rietumu Banka (namely Leonid Esterkin, Anatoly
Levin, Arkady Sukharenko). Rietumu Banka vice-president Alexander
Kalinovsky believes that the Icelandic bank has changed its mind because
in effect the local management would retain its decisive role even if the IFBA
held the controlling stake. It's worth mentioning that the Icelanders had no
intention of managing the Latvian bank themselves, however, it is most likely
that the decision was made out of caution in the light of of recent litigation
started against another Icelander, Gisli Reynisson, concerning the buy-out
of minority shareholders in Latvian sweets maker Staburadze. Alexander
Kalinovsky also said that the deal with the Icelandic bank initially envisaged
an increase of registered capital by USD 2.5 million: "The increase was not
crucial, considering Rietumu Group's current capital placed at 16.5 million
lats (USD) by semi-annual results. In July Rietumu Group president
Michael Bourke visited Lithuania in relation to the take-over of a major
securities company, Baltijos Vertibiniai Popieriai. This Lithuanian brokerage
was also a previous owner of Saules Banka.
Parex Bank, Latvia's largest bank in terms of assets - exceeding one
billion lats ( 1.6 billion USD) by semi-annual results - has been looking for
a strategic partner for the past two years. In the meantime Parex Bank
recently obtained permission from the Latvian Finance and Capital Market Surveillance
Commission for the opening of a representation in Estonia. Permission from the
Bank of Estonia is yet to be acquired, but Parex Bank spokesperson Lev
Fainveits said that the bank would not hesitate with opening the representation
in Tallinn. Previously Parex Bank's president, Valery Kargin told
reporters that future plans expect to transform the Tallinn representation into
a branch and did not rule out the possibility of even buying another business
in Estonia, like a leasing company, for example. Such a move would conclude
the expansion of Parex Bank's network across the Baltics.
A small Latvian bank, Paritate, is in trouble after the
Riga District Court declared it insolvent as of June 26. It is said that the
bank's insolvency was mostly due to the sharp decline of stocks on the US market,
where Paritate had invested a rather large or maybe too large a portion
of its assets. But in early September, the Latvian Finance and Capital market
Surveillance Commission has agreed to go on with a recovery plan for the bank,
following the interest of two Russian and one Ukrainian residents. The three
persons want to buy up 100 percent of the insolvent bank's capital. If the plan
goes through, paritate would be the third Latvian bank to be owned by Russian
residents. Most of the bank's customers are also non-residents, and for now
it's hard to say what the Bank of Latvia will say about selling the bank to
the group of Russians.
The Bank of Latvia also granted a new banking license in June, the first in
recent years, to newcomer Baltikums. The bank belongs to Baltikums
Investicijas (former VB Financial Markets), owned by well-known Latvian
millionaires Alexander and Sergey Peshkovs, Andrei Kochetkov and
Oleg Chepulsky. The Baltikums Finance financial and insurance
company, operating in both Latvia and Lithuania, has thus obtained a bank for
serving its niche. Nevertheless, the number of banks in Latvia still remains
at 22.
The Finance and Capital Market Surveillance Commission only recently started its work in Latvia, taking over watchdog tasks from the Bank of Latvia. The commission is chaired by former president of the Riga Stock Exchange, Uldis Cerps. Together with the supervising function, the Bank of Latvia has also lost around 50 highly paid bank supervision experts, transferred to the new surveillance body and for the next couple of years, until the commission becomes self-sustaining, their paychecks will still be paid from the central bank's budget.
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