LHV UK Limited, a subsidiary of AS LHV Group, has made an offer to Bank North Limited, a UK-based credit institution, to acquire its small and medium-sized enterprise (“SME”) lending business . With this move, LHV UK Limited, which is currently applying for a UK banking licence, enters the UK SME lending market.
LHV Group currently holds a 9.3% stake in Bank North as a financial investment. North Bank was authorized with restrictions and entered the mobilization period in Q3 2021. The mobilization period usually lasts up to 12 months and enables new banks to complete their bank building and fully capitalize the bank. Although the bank saw a significant demand for loans, North Bank was unable to raise the required capital due to the decline in activity in the capital markets. Therefore, on September 30, 2022, the company decided to initiate the Solvent Wind Down process. For LHV Group, the liquidation of Banka Veri means an additional write-off of its financial investment in the amount of 2.2 million euros in September.
Banka North with the help of liquidation advisers conducted a tender for the sale of its business activity or loan portfolio, where LHV UK made the best offer.
The acquisition of the business would include the loan portfolio of around £17.9 million, 20 employees, customer relationship management information technology systems and the loan portfolio, together with agreements with commercial agents. Employees include the business development and customer relations team, underwriting, evaluation and IT teams. The transaction price is 110% of the book value of the loan at the time the transaction is completed. The transaction is scheduled to close in October. LHV UK will fund the transaction from its own funds and does not need additional capital to complete the transaction. For LHV UK the purchased loan portfolio would start generating interest income immediately after its transition. The long-term financial effect of the transaction will be revealed with the LHV Group’s financial plan in February 2023.
Comment from Madis Toomsalu, CEO of LHV Group: “Corporate lending has been the core activity of LHV Group since the establishment of LHV Pank. Northern Bank’s activities have proven that the demand for UK SME loans remains strong and that an efficient and fast decision-making process makes possible a new entry into the market to grow a lending business. North Bank’s strengths have been the fastest lending process compared to competitors, regional focus and excellent relationships with commercial intermediaries. The lending business is in line with the strategy and LHV UK’s business plan, which envisages the future expansion of existing activities in the SME lending market, enabling a significant acceleration of current plans. LHV UK plans to continue sales through existing commercial intermediaries and also to continue to operate the physical branch in Manchester. For a bank of LHV’s size, the question in the UK is not about credit demand, but about having sufficient capital to meet the demand”.
LHV UK’s growth strategy in the UK is supported by three business lines: banking services for financial intermediaries, SME lending and banking services for e-merchants. LHV UK is currently focused on obtaining a banking licence. In order to provide new loans to SMEs, LHV UK must be registered as an Annex 1 financial institution.
LHV Group is the largest domestic financial group and capital provider in Estonia. The main subsidiaries of LHV Group are LHV Pank, LHV Varahaldus and LHV Kindlustus. The group employs more than 820 people. As of August, LHV banking services are used by 359,000 customers, pension funds managed by LHV have 132,000 active customers and LHV Kindlustus protects a total of 149,000 customers. LHV’s UK branch provides banking infrastructure to 200 international financial services companies, through which LHV’s payment services reach customers around the world.
Priit Rum
Communications Manager
Phone: +372 502 0786
Email: priit.rum@lhv.ee
