Russia enters Lithuanian banking market

  • 2003-03-27
  • Steven Paulikas

One of Lithuania's largest banks has come under nominal control of a little-known Russian financial institution, leaving industry insiders to wonder whether there was any potential synergy between the two.

On Mar. 21, Snoras Bankas' chairman resigned after the Moscow-based Konversbank acquired the holding company that owns a controlling stake in the Lithuanian bank.

In a statement to the press, Jefimas Borodulinas, former chairman of Snoras' board of directors, declared that his team had found the strategic investor for which it had been searching but that his services at Snoras were no longer needed.

Borodulinas stated that Snoras had been looking for a Russian investor since "Russia has always been one of Lithuania's fundamental trading partners," and that the bank was attempting to positively position itself in light of the "certainty of the influx of Russian capital into the Lithuanian banking sector."

Earlier in March, Konvers-bank acquired the Luxembourg-registered Incorion Investment Holding Company, Snoras' majority shareholder.

As Incorion is the official controlling entity of Snoras, Konversbank was able to circumvent Russian legislation, which restricts its financial institutions from investing in foreign banks.

Moreover, by taking control of a pre-existing holding company, Konversbank has avoided the approval procedure from the Bank of Lithuania, which would have to grant its permission for the Russian bank to take direct control of Snoras.

Nonetheless, Konversbank officials met with Reinoldijus Sarkinas, chairman of the Lithuanian central bank, on March 21 to discuss the possibility of increasing their stake in Snoras, which would require Sarkinas' approval.

Sarkinas told reporters after the meeting that he had yet to receive any official documents regarding possible direct control of Snoras, but that he had "received verbal confirmation" of such a proposal.

Mindaugas Vinkus, press secretary for the Bank of Lithuania, said that the bank has proven its investor friendliness in the country's banking sector.

"We have welcomed significant investments from Germany, Sweden, and other European countries in the past," said Vinkus. "It is not important to us in what country potential investment originates," he stated.

While the details of Konversbank's plans for Snoras have not been made clear, bank officials have indicated their desire to expand Snoras' regional presence, perhaps opening branches in Latvia.

According to Gintaras Jatkonis, communications director for Snoras, Konversbank should make its final intentions clear by the end of March.

"The investors will declare their own plans themselves," said Jatkonis.

Regardless of Konversbank's designs for the future of Snoras, questions have been raised as to the suitability of the Russian investor to effectively lead Snoras.

In an interview with the daily Lietuvos Rytas, Snoras President Raimondas Baranauskas deflected criticism that Konversbank was too small of a partner for Snoras. While Baranauskas admitted that Snoras' holdings were larger than those of Konversbank, he claimed that the Russian bank's holdings were large enough to suffice.

Konversbank's assets amount to 2.9 billion rubles (89.2 million euros,) roughly one-third that of Snoras, whose assets are valued at 1.1 billion litas (318.8 million euros).

Snoras further dwarfs Konversbank in other measures, such as net deposits: whereas Snoras has 842 million litas in deposits, Konversbank reported 73.3 million rubles, a sign of Snoras' advanced personal banking franchise network.

Konversbank's history may furthermore complicate the prognosis for its potential to steer Snoras through regional expansion. The bank was created back in the perestroika days of 1989 and soon became the primary creditor for the national civil nuclear energy sector during the privatization of industry that subsequently took place in the country.

Konversbank maintained its status as Russia's premier nuclear creditor until January 2002, when the Central Bank of Russia invalidated the bank's share issue and reportedly demanded that the then chairman step down.

The following month, Akademkhimbank took a controlling share in Konversbank and installed its personnel in the bank's top management positions.

Akademkhimbank was also founded with the intent of funding Russian scientific research but has restyled itself as a commercial and retail bank in recent years. The bank currently holds a 19.85 percent share in Konversbank.

Snoras posted an audited profit of 10.5 million litas in 2002, 13 percent above its estimate.