SEB Sees Baltic Loan Growth as Companies Invest in Expansion

  • Bank expects Baltic lending market to grow about 4% in 2017
  • SEB targets 30% Baltic market share through organic growth

Credit markets in Estonia, Latvia and Lithuania will keep growing next year as Baltic companies expand abroad and benefit from robust consumption at home, according to the region’s second-largest lender.

Loan portfolios in the three Baltic euro members will probably expand about 4 percent in 2017 while SEB expects to grow “at that pace or a bit faster,” Riho Unt, head of SEB AB’s Baltic division, said in an interview in Tallinn. The Stockholm-based bank targets a Baltic market share of about 30 percent through organic growth, he said.

A slow recovery in Baltic credit growth following the global financial crisis, coupled with rising capital requirements for banks, has triggered a string of banking acquisitions in the region. Swedbank AB, the largest lender in the Baltics, earlier this year completed the takeover of the retail banking business of Danske Bank A/S in Latvia and Lithuania. Nordea Bank AB and DNB ASA last month agreed to combine their Baltic operations to gain scale.

“Economic activity is clearly stronger than a year earlier,” Unt said. “Bigger Baltic companies are investing as they see opportunities for growth. Companies are much stronger in terms of balance sheets and capacity than before the crisis.”

SEB’s Baltic credit portfolio, excluding real-estate holding companies, grew 4.7 percent in the first half of this year to 111 billion kronor ($13 billion) after shrinking 1.9 percent in 2015. The bank had a lending market share of 24 percent in Estonia, 17 percent in Latvia and 29 percent in Lithuania last year.

Transport, farming and pharmaceuticals companies in the region have “plenty of space” to expand in their key markets outside the Baltics due to their smaller size versus European peers, Unt said. The strong domestic demand that has powered the Baltic recovery in the past few years will also boost growth and employers should be able to handle competitiveness issues even if wages keep growing, he said.

“Labor market policy is very competitive in the whole Baltic region, having allowed local companies to restructure themselves several times faster than western rivals when it’s needed,” Unt said. “Baltic countries also excel in reliability of their business environment.”

Still, political populism and worsening demographics pose potential risks, while governments should bring more assets to local exchanges to address the region’s “dysfunctional” capital market, according to Unt.

While SEB doesn’t rule out acquisitions in the region, any such move would require “very good” price and a strategic match, Unt said. Its larger rival Swedbank said in May that it’s looking at smaller peers in Latvia and Lithuania for further deals after the Danske Bank transaction.

“Today, we see that market growth is already fast so we can satisfy business expansion through organic growth,” he said. “It doesn’t mean we’d close the doors to all opportunities but we aren’t actively seeking anything.”

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