Siauliu Bankas AB, the Lithuanian lender part-owned by the European Bank for Reconstruction and Development, will assume the insured deposits of insolvent Ukio Bankas AB in a deal that will almost double its size.
Siauliu will take over 2.7 billion litai ($1 billion) of Ukio deposits and assets of the same value, according to a contract signed last night with Ukio’s administrator and the state deposit-insurance fund, the Siauliai, Lithuania-based lender said in an e-mailed statement. The EBRD will grant Siauliu a 20 million-euro ($26 million) 10-year subordinated loan to strengthen its capital base for the expansion, it said.
Siauliu, which had assets of 2.9 billion litai on Dec. 31, will overtake Danske Bank A/S to become Lithuania’s fifth-largest bank by assets, after local units of Nordic lenders SEB AB, Swedbank AB, DNB ASA and Nordea Bank AB. The transaction will reduce payouts from the Baltic nation’s deposit insurer to 800 million litai, which the government plans to lend the fund.
“The achieved agreement will result in new and bigger possibilities of growth for our bank’s clientele, staff and shareholders, while the entire banking system in Lithuania will become stronger and even more competitive,” Siauliu Chairman Algirdas Butkus said in the statement.
The contract, which the Lithuanian government and central bank supported, obliges Siauliu “to renew banking services for the customers of Ukio Bankas in the shortest time possible,” the Bank of Lithuania said in a separate e-mailed statement.
The Bank of Lithuania suspended Ukio’s activities Feb. 12 and appointed an administrator, saying the lender was insolvent after risky lending to related companies. Just over a year after the collapse of Snoras Bankas AB, the government was eager to avoid another bankruptcy that would test the state deposit-insurance fund.
The agreement “has ensured stability in the sector,” Sylvia Gansser-Potts, the EBRD director for financial institutions, said in an e-mailed statement.
The preliminary value of the assets transferred to Siauliu, determined by auditor KPMG Baltic, may be revised in three months after a more detailed assessment, in which case the liabilities of the parties to the contract will also be revised, the central bank said.
Bankruptcy proceedings are planned to recover remaining assets of Ukio, including property in Scotland and elsewhere, for creditors, among whom the deposit-insurance fund will be the largest, according to the Bank of Lithuania.
The EBRD owns 19.6 percent of Siauliu, which after Ukio’s collapse is Lithuania’s only publicly traded bank. Siauliu shares rose 10 percent to 0.267 euro in Vilnius on Feb. 13, when the lender announced plans to negotiate for Ukio’s assets, and closed at that same level on Feb. 22.