LHV UK Limited, a subsidiary of 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. The move sees LHV UK Limited, which is currently applying for a UK banking licence, enter the UK SME lending market.
LHV Group currently holds a 9.3% stake in Bank North as a financial investment. Bank North was authorized with restrictions and entered the mobilization period in the third quarter of 2021. The mobilization period usually lasts up to 12 months and allows new banks to complete the construction of their bank and to fully capitalize it. Although the bank saw substantial demand for loans, Bank North was unable to raise the necessary capital due to a drop in activity in the capital markets. Therefore, on September 30, 2022, the company decided to start the Solvent Wind Down process. For the LHV Group, liquidating Bank North means an additional loss of its financial investment for an amount of 2.2 million euros in September.
Bank North with the help of liquidation advisers held a tender to sell its business activity or loan portfolio, where LHV UK made the best offer.
The acquisition of the business would include the loan portfolio of approximately £17.9m, 20 employees, information technology systems for customer relationship management and the loan portfolio, together with broker agreements commercial Employees include the business development and client relationship team, underwriting, valuation and IT teams. The transaction price is 110% of the book value of the loan at the time the transaction is completed. The transaction is expected to be completed in October. LHV UK will fund the transaction with equity and does not require additional capital to complete the transaction. For LHV UK, the acquired loan portfolio would start generating interest income immediately after its transition. The long-term financial effect of the transaction will be disclosed with the financial plan of the LHV Group in February 2023.
Comment from Madis Toomsalu, CEO of LHV Group: “Business lending has been the LHV Group’s core business since the inception of LHV Pank. Bank North’s activities have shown that demand for SME loans in the UK remains strong and that a process of taking efficient and fast decision-making enables a new market entrant to grow a loan business Bank North’s strengths have been a faster loan process compared to competitors, regional focus and a great relationship with brokers The lending business aligns with LHV UK’s strategy and business plan, which envisages further expansion of existing activities in the SME lending market, enabling significant acceleration of current plans. LHV UK plans to continue sales through existing commercial brokers and also continue to operate the brick-and-mortar branch in Manchester.For a bank of LHV’s size, the question in the UK is not about loan demand, but about having enough capital to meet demand.”
LHV UK’s growth strategy in the UK is supported by three lines of business: banking services for financial intermediaries, lending to SMEs and banking services for e-merchants. LHV UK is currently focusing on obtaining a banking licence. In order to offer new SME loans, LHV UK must register as a Schedule 1 financial institution.
LHV Group is Estonia’s largest national financial group and capital provider. 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 banking services are used by 359,000 customers, pension funds managed by LHV have 132,000 active customers and LHV Kindlustus 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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