Estonia’s LHV buys Bank North loan book amid shutdown

LHV Group CEO Madis Toomsalu

LHV UK Limited, a subsidiary of Estonian banking group LHV Group, announced it has has made an offer to acquire the £17.9 million small and medium-sized enterprises (SME) lending business of Manchester-based Bank North.

The Manchester SME bank recently initiated a “solvent wind down” process.

“With this move, LHV UK Limited, which is currently applying for a UK banking license, enters the UK SME lending market,” said the Estonian group.

“LHV Group currently holds a 9.3% stake in Bank North as a financial investment.

“Bank North was authorised with restrictions and it entered the mobilisation period in Q3 2021.

“The mobilisation period usually lasts up to 12 months and enables new banks to complete the build-out of their bank and fully capitalise the bank.

“Although the bank saw substantial loan demand, Bank North was unable to raise the required capital due to falling activity in the capital markets.

“Therefore, on 30 September 2022, the company decided to initiate the Solvent Wind Down process.

“For LHV Group, liquidating Bank North means an additional write-off of its financial investment in the amount of EUR 2.2 million in September.

“Bank North with the help of liquidation advisers conducted 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 17.9 million pounds, 20 employees, information technology systems for managing the customer relationships and loan portfolio, alongside agreements with commercial brokers.

“Employees include the business development and client relationship team, underwriting, valuation and IT teams.

“The transaction price is 110% of the loan book value at the time the transaction completes. The transaction is scheduled to be completed in October.

“LHV UK will finance the transaction from its own funds and does not need additional capital to carry out the transaction.

“For LHV UK the acquired loan portfolio would start generating interest income right after its transition.

“Longer term financial effect of the transaction will be disclosed with the LHV Group financial plan in February 2023.”

LHV Group CEO Madis Toomsalu: “Lending to enterprises has been the main activity of LHV Group since the establishment of LHV Pank.

“Bank North’s activities have proven that the demand for SME loans in the UK remains strong and that an efficient and fast decision-making process makes it possible for a new entrant to the market to grow a lending business.

“Bank North’s strengths have been faster lending process compared to competitors, regional focus and great relationship with commercial brokers.

“The lending business aligns with LHV UK’s strategy and business plan, which envisages the next expansion of existing activities into the SME lending market, enabling a significant acceleration of current plans.

“LHV UK plans to continue sales through existing commercial brokers and also continue operating the physical branch in Manchester.

“For a bank the size of LHV, the question in UK is not about demand for loans, but about having enough capital to meet the demand.”