Baltic region

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Hansabank is the region's most successful bank. Foreigners take control. Simon Brady

Estonia
Best domestic bank: Eesti Uhispank

Best foreign bank: Hansapank

Best domestic securities house: Tallinvest Suprema

Sweden's Skandinaviska Enskilda Banken. now owns 50.15% of Eesti Uhispank in Estonia [its Baltic operations now account for around 30% of the total market; hansabank's for around 23%.] . Technically Eesti Uhispank therefore is now a subsidiary of SEB, however the stake was smaller until October 1999 and so for this year's award the bank is deemed domestic.

Eesti Ühispank, Estonia Eesti Ühispank is the second-largest bank in Estonia, with total assets of EEK15 billion at the end of 1999.

Ühispank is a universal bank, with 82 branch offices and approximately 1,700 employees.

During 1999, the bank has reduced its balance sheet through several sales, for example that of its Latvian subsidiary bank Saules Bankas.

In 1999 the bank's profits were EEK100.2 million, after tax. The bank's capital ratio o was 13.4 per cent at year-end.

The bank has a sophisticated internet offering, the most comprehensive retail network in the country and has in June signalled its intention to offer more sophisticated wholesale financial services with a syndicated loan executed jointly with Hansapank. The 15-year EEK60 million ($3.6 million) for AS Rocca al Mare Suurhall (Rocca al MareArena), developers of a sports and entertainment arena in Tallinn.will finance part of the construction costs of the sports and entertainment arena.

It is also one of the largest players on the Tallinn stock exchange with an average monthly market share of around 20%.

The bank has also now rid itself of its stake in troubled Optiva Pank - Estonia's third-largest commercial bank - which has just been bought from the central bank by Sampo Finance Tallinn. The Finnish banking and insurance bought 57.9% of the bank for EEK214 million and is obliged to make a buy-out offer to other stockholders of Optiva. Uhispank acquired an 18.8% stake as collateral for defaulted loans.

Hansapank is the country's largest bank and dominates in personal banking, corporate wholesale banking and broking. Its share of bourse turnover rarely drops below 50%.

Tallinvest Suprema is the most active broker and investment bank in the country. Its share of the secondary equity market is around 15%, well behind Uhispank and Hansapank but well ahead of rival Trigon Capital (4.7%).

Suprema is also the best corporate finance house in Estonia, trusted both by locals and foreign acquirers. For example, the firm is advising Kesko, the largest Finnish retail concern in its purchase of 95.7% of AS Fanaal which owns Ehitusmaailm, Estonia's largest retail chain. Also, the city of Parnu has announced the sale of 99.95 percent of Parnu Soojus (Parnu Heating Co. Ltd.) and this privatization will be executed by Suprema as will that of ASTallinna Vesi (Tallinn Water Co.). Among companies interested in buying Tallinn Water are Azurix and International Water of the US, Vivendi Water (Générale des Eaux and US Filter) and Lyonnaise des Eaux.

Simon Brady





Latvia
Best domestic bank: Parekss (Parex) Bank

Highly commended: Latvijas Unibanka (Unibank)

Best foreign bank: Hansabanka

Best domestic securities house: Parekss Bank

Best foreign securities house: Tallinvest Suprema

The Latvian economy is under control although the current account deficit remains high at more than 9% of GDP. The government is pressing ahead with the privatization of the Latvian Shipping Company, Latvenergo and Lattelkom, Latvia's three largest companies.

The government has access to the international capital markets and placed a e75 million Eurobond last September at 225 basis points over Bunds.

With assets of $719 million Parex Bank has around 20% of its domestic market and 7.6% of the Baltic market. Its nearest rivals are Unibanka and Hansabank.

Four of the top 10 Baltic banks by assets are Latvian - suggesting a possible solution to the problem of foreign competition. Parex has already attempted to grow by acquisition - it acquired a controlling stake in the smallest banki in Lithuania, Industrijos Bank,.and was unsuccessful in the first privatization tender for Agriculture Bank. It was negotiating to buy Litimpeks bank when the latter went bankrupt.

Parex is one of the few quality banks in the region without a strategic partner but has recognized the impossibility of maintaining that stance. It has appointed ABN Amro Rothschild to identify such an investor and to prepare it for an international listing.

Traditionally, Parex has been the most consistently profitable Latvian institution.

Cumulative profits since 1993 are three times those of nearest rival Unibank. However, 1999's results were disappointing: Unibank made more than twice as much. In the first quarter both institutions were eclipsed by Hansabanka which made around $11 million - more than both it major rivals put together.

The bank has the largest deposit base in Latvia served through 17 branches and 66 client service centres.

Hansabanka competes with the Riga branches of Vereinsbank and Société Générale as well as Unibanka which is SEB's subsidiary in the country. In terms of profitability the bank is small - no larger than those foreign branches and well behind Unibanka. It also lags Unibanka in assets and capital. However, it is expanding more aggressively and has embraced the internet more quickly. Its profits also appear to be accelerating sharply.

In October 1999 Hansabanka increased its presence in the country with its merger with Latvijas Zemes banka. The new bank has a branch network of 23 branches and 50 ATMs.

Increasing market share in Latvia is one of the bank's core aims this year.

Suprema is the only foreign investment bank in the country - outside the universal banking operations of the major commercial banks - that commands the respect of the market.

Simon Brady





Lithuania
Best domestic bank: Vilniaus Bankas (Vilnius Bank)

Best foreign bank: Hansabankas

Best domestic securities house: VB Vilfima

Best foreign securities house: Tallinvest Suprema

It's been a tough year in Lithuanian banking.

The Vilnius office of Polish Kredyt Bank may have made a profit of LTL4.7 million but Société Générale and Hansabank lost LTL3.9 million and Norddeutsche Landesbank Girozentrale - only set up in November 1999 - lost LTL300,000.

These losses are largely the result of Lithuania's failure to recover as quickly as its neighbours from the downturn caused at least in part by the Russian crisis. In 1999 GDP fell 3.3% (Latvia's economy remained flat and Estonia's contracted by 0.8% in the same period.)

Despite this grim macroeconomic environment Vilniaus Bankas (Vilnius Bank) made LTL80.5 million, up 34.7% on the previous year.

Deposits rose 27%, the loan portfolio by 32% and shareholders' equity by 18%. Loan quality remains high with NPLs forming around 3% of the total portfolio, down from more than 4% a year ago. The bank has also become the first Lithuanian commercial bank to join Euroclear.

This year Vilniaus merged with Bankas Hermis to boost its local retail presence and strengthen its activities in other areas. The bank has leasing, private equity and life insurance subsidiaries as well as the country's best investment banking concern, VB Vilfima, which it acquired in mid-1998.

Competition is intensifying. Privatization is freeing large state institutions from the constraints of public ownership and foreign banks, notably Hansabankas, are expected to play a significant part in these sell-offs.

Hansabank established a subsidiary in 1999 and has stated that in 2000 it will be seeking to increase its share of the Lithuanian market substantially.

Even before the acquisition Vilfima was a partner of choice for foreign companies and banks doing business in Lithuania and the IFC has selected the firm as its research partner in Lithuania. A competitor is, once again, Tallinvest Suprema.

Simon Brady





Best foreign bank: Hansabank

Best foreign bank: Tallinvest Suprema

As is the case in many of the rest of the emerging markets, domestic institutions are finding it hard to remain independent in their own back yards, let alone manage to establish strong regional operations. Sweden's Skandinaviska Enskilda Banken (SEB) owns 50.5% of Latvijas Unibanka in Latvia, 42% of Vilniaus Banka in Lithuania and 50.15% of Eesti Uhispank in Estonia. Swedbank owns a majority stake in Hansabank. Finnish and German institutions are also eyeing these territories. No domestic bank without foreign strategic shareholders can claim to be a regional strength.

Hansabank based in Estonia, is by far the biggest and most successful bank in the Baltic region, having spread its operations to Latvia and Lithuania. Founded in 1991 it now has around one million retail accounts and 60,000 corporate accounts. Some 68% of all payments and 87% of all transactions are made through the internet, telebanking or other remote channels.

The bank's return on assets at 3.8% last year, is unparalleled in any low-inflation emerging market, and the return on average equity last year was 25.5%. Its cost/income ratio was below 50% last year and was 46.2% for the first quarter 2000. Non-performing loans are a mere 1.6% of total lending. Tier-one capital adequacy is 17.68%.

Hansabank has 70% of all retail deposits in Estonia, having merged with the Estonian Savings Bank in July 1998. Swedbank of Sweden, already a shareholder in the savings bank, became a 52.64% shareholder in Hansabank later that year.

Hansabank bought the sixth biggest bank in Latvia in June 1996, and started an operation in Lithuania in July last year. It dominates the Baltic leasing and factoring markets, with 65% market share at home and a 30% market share in the other Baltic states. The loan portfolio is well-balanced between individuals (18%), real estate (13%), transport (13%), retail and wholesale (18%), industry (18%) and construction (3%). Some 60% of loans to individuals are housing loans.

Like most banks in the Russian sphere of influence, Hansabank had a tough time after the 1998 crisis. It suffered on fixed-income investments and its loan book in Russia.

Having opened in Russia and had its fingers burned, Hansabank is not looking to expand beyond the Baltics for the moment.

But it has ambitious plans to meet the huge catch-up potential of Baltic customers, when compared with those in Sweden. The populations of Sweden and the Baltics are roughly the same, but the GDP per capita in Sweden is 10 times higher. Loan and deposit growth in the Baltics last year were 20% and 26% respectively, while in Sweden both languished at about 10%.

Through Hansabank markets (trading and investment banking) and Hansa Capital (leasing and factoring) it is developing a pan-Baltic presence, linking its commercial bank in each market.

Hansabank has a brand name better than its Swedish parent Swedbank and is not likely to lose its identity in a corporate rebranding anytime soon. But it may go for a higher free float (its shares are listed in Tallinn and London). The EBRD has a 9.7% stake, which it is expected to float in a secondary offering.

Handlowy Investments which owns 5% may do the same.

The most comparable group operating in the Baltic region is the group of banks owned by SEB group of Sweden: Vilniaus Bankas (in Lithuania), Ühispank (in Estonia), and Latvijas Unibanka (in Latvia). Together they have assets of e2.8 billion, compared with Hansabank's e2.2 billion. But the banks do not form a coherent brand as does Hansabank.

Tallinvest Suprema, based in Estonia and led by Peter Sachs is the only domestic regional brokerage with offices in all three countries.

Its main regional competitor is the securities arm of Hansabank though in each individual market there is a local broker fighting for the leading position in secondary market turnover.

Suprema is the only local house that can reasonably be described as a full service investment bank. It is a leading adviser on privatizations throughout the region; it is chosen by foreign firms in all the key sectors to advise on their purchases in the Baltics; and it offers a full range of primary and secondary market equity services.

The firm has also been chosen, along with Finland's CapMan Capital Management Oy and SITRA, as an adviser on the European Bank for Reconstruction and Development's Baltic Investment Fund III.

Simon Brady and David Shirreff