Changes in the Baltics banking sector

Vilnius, Lithuania (EuroVizion, CC BY)

Nordea Bank and DNB have agreed to combine their operations in Estonia, Latvia and Lithuania to build up scale in a corner of their business that forms part of the euro-zone.

Stockholm-based Nordea and DNB, based on Oslo, will have equal voting rights over the combined bank, the two said in a joint statement. The deal still needs regulatory approval, but is expected to be completed around the second quarter next year, they said. This is the final outcome of Nordea efforts to sell its assets in the Baltic countries. 

The move is intended to make the combined unit the “main bank for customers in the Baltics” by gaining scale and a broader product offering, Inga Skisaker, head of Banking Baltic Countries at Nordea, said in the statement.

Nordea’s Baltic unit has 1,300 employees and EUR8bn in assets. DNB has 1,800 employees and EUR5bn in assets. The combination will create the second-largest bank in the Baltics, which will rank first in corporate loans and second in household loans. Its total lending market share will be 26 per cent.

The new entity will be a systemically critical bank in the region, meaning it will be supervised by the European Central Bank.

In Lithuania, the combined unit will become the largest bank by lending volume, with a market share of 30 per cent, overtaking Sweden’s SEB AB as the No. 1. In Latvia, the combined unit will become the second-largest lender in terms of assets, just behind Sweden’s Swedbank AB.

“DNB needs to add scale in the Baltic region to prepare for the future banking environment. Scale is key in banking today, with larger banks having more efficient use of resources,” Mats Wermelin, head of DNB’s Baltic Division, said.

DNB is no stranger to Baltic joint ventures, having had one with Germany’s Norddeutsche Landesbank Girozentrale. In 2010, it exercised an option to take over the German bank’s share in DnB NORD, which operated in Estonia, Latvia, Lithuania and Poland.

The Estonian central bank has said the combination would increase the assets of the country’s banking sector by 40 per cent and expose Estonian financial stability to Latvian and Lithuanian banking market risks.

Meanwhile Lithuania, together with Ukraine, has the highest per cent of insolvencies, up to 16.3 per cent. Ukraine has 20.8 per cent. In these countries, insolvencies were reported mostly in the commercial, construction and manufacturing sectors.

Generally in the CEE insolvencies are down in nine of 13 CEE countries, according to a recent Coface report. In Latvia the number of insolvencies fell by 13.8 per cent and by 9.7 per cent in Estonia last year.

Romania has seen the most significant improvements as insolvencies there plummeted 49.5 per cent from 2014. Hungary was also among the best performers as it reported a 44.2 per cent drop in insolvencies.

“The main driver of our region’s economic growth in 2016 will be the growth of household consumption, which will be fueled by improvements in the labor market and increased consumer confidence,” said Coface CEO for Latvia Arnis Blumentals. He noted, however, global growth has been slowing down, which can impede the growth of exporting enterprises.

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