TALLINN - Uhispank President Ain Hanschmidt suggested at a conference in September 2004 that Tallinn could become the financial capital of northern Europe thanks to the wide availability of finance experts and the growing experience in the field.
Judging by the recent spurt of activity by foreign banks in Estonia, Hanschmidt may be right.
In April 2004, a month before EU accession, half a dozen foreign banks had been waiting for the license to start banking operations in Estonia. Financial experts at the time said that EU membership was triggering interest among banks willing to position themselves on the EU's eastern border.
As of October there were six credit institutions (large players such as Hansapank, Uhispank and Sampo) and three branches of foreign credit institutions (Nordea, Parex, Vereins- und Westbank) licensed in Estonia. In addition, six more representative offices may soon turn into full-time branches.
But the number of banks could grow even faster due to EU regulations that allow any credit institutions licensed elsewhere in the EU to come to the Estonian market. Yet with the retail market largely divvied up among the country's large banks - namely Hansapank and Uhispank - the new arrivals are primarily concerned with occupying a strategic niche.
Vereins- und Westbank, of Germany's second-largest financial group HypoVereinsbank, opened a representative office in Estonia in 2002 and by October 2004 had grown to a licensed branch with 30 employees. The bank is mainly active in the industries where debt finance is needed and is looking for offering trade finance services in the future.
The bank's total loan portfolio in the Baltics amounts to 500 million euros, with Lithuanian operations being the largest (240 million euros). In Riga the bank also offers private banking to high-income customers who cannot be found elsewhere in the Baltics, the bank said. So far the real loss suffered by Vereins- und Westbank in the Baltics amounts to about 1 million euros.
Frank Marcus, head of the branch, said the bank's main operations in Estonia have been related to trade, production and the infrastructure sector.
"As a branch we don't have a balance sheet, but so far we have helped Estonian companies realize transactions worth about 100 million euros. From that sum, about 20 percent was related to the real estate sector, 30 percent to transport and infrastructure and the rest to corporate finance," said Marcus.
He added that Vereins- und Westbank targets medium and large enterprises in Estonia and financing of international trade transactions. "Many companies here have business relations with Germany, and we can work with them. We are not going for a market-share-driven success, we are a niche bank," said Marcus.
Latvia's Parex Bank received its license to work in Estonia in March 2004, although the representative office had been around since 2001. Loit Linnupold, the branch's managing director, said mortgage loans are the only product the bank is offering to private customers in Estonia, while the other products and services target corporate clients.
"We cannot compete with large banks such as Hansabank and Nordea interest-rate wise, but we are more flexible when it comes to mortgage loans," said Linnupold.
The branch in Estonia employs 28 people, with only one staff member from Latvia.
Linnupold says the overall loan portfolio Parex has developed in Estonia in the last several years, including loans issued from Riga, amounts to about 1 billion kroons (64 million euros).
Parex Bank lists business projects related to Russian and Pan-Baltic companies, transit, infrastructure, real estate and small and medium enterprises as its Estonian priorities. "So far the most successful sectors for us have been real estate and transit," said Linnupold. "Retail operations require office and ATM networks, which are expensive. Besides, profit margins in providing banking services to private individuals are lower."
