LHV UK Limited, a subsidiary of AS LHV Group, has made an offer to acquire its Small and Medium Enterprise (“SME”) lending business from UK credit agency Bank North Limited. Through this move, LHV UK Limited, which is currently applying for a UK banking license, has entered the UK SME loan market.
LHV Group currently holds a 9.3% stake in Bank North as a financial investment. Bank North received a restricted authorization and entered a mobilization period in the third quarter of 2021. The mobilization period is typically up to 12 months, allowing the new bank to complete the bank’s expansion and fully capitalize the bank. Although the bank saw significant demand for loans, Northern Bank was unable to raise the capital it needed due to reduced capital market activity. 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 write-off of its financial investments of 2.2 million euros in September.
Bank North conducted a tender to sell its business activity or loan portfolio with the help of a liquidation adviser, and LHV UK provided the best offer.
The acquisition of the business will include a loan portfolio of approximately £17.9 million, 20 employees, information technology systems for managing client relationships and loan portfolios, and agreements with commercial brokers. Staff include business development and customer relations teams, underwriting, valuation and IT teams. The transaction price was 110% of the book value of the loan at closing. The transaction is scheduled to close in October. LHV UK will fund the transaction with its own funds and no additional funds are required to conduct the transaction. For LHV UK, the acquired loan portfolio will begin generating interest income immediately upon its transition. The long-term financial impact of the transaction will be disclosed in February 2023 in conjunction with the LHV Group financial plan.
Comments from Madis Toomsalu, CEO of LHV Group: “Lending to businesses has been the main activity of the LHV Group since the inception of LHV Pank. Bank North’s activities prove that demand for SME lending in the UK remains strong, and an efficient and fast decision-making process enables new entrants to grow their lending business .Bank North’s strengths compared to its competitors lie in a faster lending process, regional focus and good relationships with commercial brokers.The lending business is in line with LHV UK’s strategy and business plan, with the next expansion of existing activities expected into small and medium-sized businesses Business lending market, thus significantly accelerating the current scheme. LHV UK plans to continue selling through existing business brokers and continue to operate a physical branch in Manchester. For a bank of LHV size, the issue in the UK is not about demand for loans, but about having enough funds to meet the needs.”
LHV UK’s growth strategy in the UK is based on three business lines: Financial Intermediary Banking Services, SME Lending and Electronic Merchant Banking Services. LHV UK is currently focusing on obtaining a banking licence. In order to provide new SME loans, LHV UK must be registered as an Annex 1 financial institution.
LHV Group is the largest financial group and capital provider in Estonia. The main subsidiaries of the LHV Group are LHV Pank, LHV Varahaldus and LHV Kindlustus. The group has more than 820 employees. As of August, LHV’s banking services were used by 359,000 clients, the LHV-managed pension fund had 132,000 active clients, and LHV Kindlustus protected 149,000 clients. LHV’s UK branch provides the banking infrastructure for 200 international financial services companies through which LHV’s payments services reach customers around the world.
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