Central bank gives blessing to merger

VILNIUS - After nearly two months of fence-sitting, the Bank of
Lithuania finally gave the green light to merger plans between two of
the country's largest commercial banks.

Should the marriage of Vilniaus Bankas and Bankas Hermis go according
to plan, the unified entity will emerge as one of the biggest Baltic
banks. The two banks had been waiting for central bank approval since
July 23.

When the banks got word that Vilniaus would be allowed to acquire
from two-thirds to 100 percent of Hermis shares, they responded with
a simple joint statement.

"Vilniaus Bankas and Bankas Hermis welcome the decision of the
central bank. The two banks expect the competition council to approve
the merger and that all the conditions of the merger defined in the
agreement between the banks will be met," the statement read.

The shareholders of Hermis will be able to sell their shares or
convert them into shares of the new bank. Reinoldijus Sarkinas, the
board chairman of the central bank, said if everything goes smoothly,
the merger could be finalized within a year.

The central bank's decision was a real milestone for Vilniaus Bankas.
In more than one occasion over the past year and a half, Vilniaus
Bankas has tried and failed to coax such a verdict from the central
bank.

On Vilniaus' first try in the spring of 1998, the central bank put
the decision on hold for an unspecified time. That, coupled with
Hermis' bitter resistance to the idea, caused Vilniaus to forget
about the move for awhile. A second attempt about a year later also
fell through.

But this time the situation was different. Hermis had come around to
the idea of hooking up with Vilniaus. Plus, according to many
analysts, Lithuania has been needing a large domestic commercial bank
for awhile. Still, Sarkinas admitted the decision was not an easy one.

"Changes are occurring in the banking sector's situation," said
Sarkinas after the decision was made. "Hansabankas is working
aggressively, Germany's Norddeutsche Landesbank Girozentral is
planning to open a branch, and other foreign banks are working.
Therefore, the board's decision wasn't very easy."

The central bank also tacked a couple conditions onto the approval.
For example, Vilniaus Bankas must buy all shares in Hermis that are
currently owned by persons connected to the former and register them
in its own name before the next Hermis shareholder meeting.
Currently, Vilniaus Bankas holds slightly less than 10 percent of
Hermis shares.

"Let's hope [the impact on the banking sector] will be positive,"
said Sarkinas. "A big bank is more competitive. The successful
privatization of Taupomasis Bankas and Zemes Ukio Bankas would give
us a group of strong banks."