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LHV UK Limited, a subsidiary of AS LHV Group, a UK-based credit institution, has offered to acquire its Small and Medium Enterprises (‘SME’) lending business to Bank North Limited. With this move, LHV UK Limited, which is currently applying for a UK banking licence, entered the UK SME lending market.
LHV Group currently holds a 9.3% stake in Bank North as a financial investment. Bank North has been sanctioned and entered into a collection period in Q3 2021. The transition period usually lasts up to 12 months and allows new banks to complete their bank construction and take full ownership of the bank. Although the bank saw high demand for loans, Bank North was unable to raise the required capital due to the fall in activity in the capital markets. Therefore, on September 30, 2022, the Company decided to initiate a liquidation winddown process. For the LHV Group, liquidating Bank North means a further write-off of its financial investment of €2.2 million in September.
Bank North conducted an auction to sell its business or loan portfolio with the help of Liquidity Advisors.
The purchase of the business includes an agreement with commercial brokers for approximately £17.9 million, 20 employees, information technology systems to manage customer relationships and a loan portfolio. Recruiters include the business development and client relations team, copywriting, review and IT teams. The transaction price is 110% of the book value of the loan upon completion of the transaction. The transaction is expected to close in October. LHV UK will finance the transaction from its own funds and will not require additional capital to execute the transaction. The loan portfolio acquired for LHV UK will start generating interest income after the transition. The long-term financial results of the transaction will be announced in February 2023 along with LHV Group’s financial plan.
LHV Group CEO Madis Tomsalu comments“Lending to enterprises has been a core activity of the LHV Group since LHV Bank was founded. Bank North’s activities have proven that the demand for SME loans in the UK is strong and that efficient and quick decision-making processes are possible. A newcomer to the market to grow the lending business, Bank North Strengths were faster loan processing compared to competitors, regional focus and good relationship with commercial brokers. The loan business is in line with LHV UK’s strategy and business plan, which indicates the next expansion. LHV UK will continue to sell through existing commercial brokers and its physical branch in Manchester. It plans to continue. For a bank the size of LHV, the question in the UK is not about the demand for loans, but whether there is enough capital to meet the demand.”
LHV UK’s growth strategy in the UK is supported by three business lines: banking services for financial intermediaries, microcredit lending and banking services for e-merchants. LHV UK is currently focused on obtaining a banking licence. In order to offer new SME loans, LHV UK must be registered as an Annex 1 financial institution.
LHV Group is the largest domestic financial group and capital provider in Estonia. The key subsidiaries of LHV Group are LHV Pank, LHV Varahaldus and LHV Kindlustus. The group employs over 820 people. As of August, LHV banking services are used by 359,000 customers, the pension fund managed by LHV has 132,000 active customers, and LHV Kindlustus maintains a total of 149,000 customers. LHV’s UK branch provides banking infrastructure to 200 global financial services companies, thereby providing LHV’s payment services to global customers.
Priit Rum
Communication manager
Phone: +372 502 0786
Email: priit.rum@lhv.ee
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