LHV UK Limited, a subsidiary of the 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 decision, 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. Bank North was licensed with restrictions and entered the mobilization period in Q3 2021. The mobilization period typically lasts up to 12 months and allows new banks to complete the construction of their bank and fully capitalize it. Although the bank saw substantial loan demand, Bank North was unable to raise the required capital due to reduced 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 Bank North means an additional depreciation of its financial investment amounting to 2.2 million euros in September.
Bank North, with the help of liquidation advisers, put out a tender to sell its business or loan portfolio, with LHV UK making the best offer.
The acquisition of the business would include the loan portfolio of approximately £17.9 million, 20 employees, IT systems for managing customer relationships and the loan portfolio, and agreements with commercial brokers. Employees include the business development and client relations team, underwriting, valuation and IT teams. The transaction price is 110% of the book value of the loan at the time the transaction is entered into. The transaction is expected to close in October. LHV UK will finance the transaction from its own funds and does not require additional capital to complete the transaction. For LHV UK, the acquired loan portfolio would begin to generate interest income immediately after its transition. The longer-term financial effect of the transaction will be disclosed in LHV Group’s financial plan in February 2023.
Commentary by Madis Toomsalu, CEO of LHV Group“Corporate lending has been the core business of LHV Group since the inception of LHV Pank. Bank North’s business has proven that demand for SME lending in the UK remains strong and a decision-making process efficient and fast allows a new market entrant to develop a lending business.Bank North’s strengths have been a faster lending process compared to competitors, regional focus and an excellent relationship with commercial brokers. lending activity aligns with LHV UK’s strategy and business plan, which envisions the upcoming expansion of existing business in the SME lending market, enabling a significant acceleration of current plans LHV UK plans to continue sales through existing trading brokers and also to continue to operate the physical branch in Manchester.For a bank the size of LHV, the question in the UK is not about loan demand. ts, but about having enough capital to meet demand.”
LHV UK’s growth strategy in the United Kingdom is based on three businesses: banking services to financial intermediaries, loans to SMEs and banking services to e-merchants. LHV UK is currently focusing on obtaining a banking licence. To provide new loans to SMEs, LHV UK must register as a Schedule 1 financial institution.
LHV Group is the largest domestic financial group and capital provider in Estonia. The main subsidiaries of the LHV group are LHV Pank, LHV Varahaldus and LHV Kindlustus. The Group employs more than 820 people. As of August, LHV’s banking services are used by 359,000 customers, LHV’s managed pension funds have 132,000 active customers and LHV Kindlestus 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 worldwide.
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