Estonia, Latvia, Lithuania - Banking Markets in The Baltics 2009-2011 - Cee Banking Brief

ESTONIA, LATVIA, LITHUANIA - BANKING MARKETS IN THE BALTICS 2009-2011 - CEE BANKING BRIEF
by Inteliace Research November 2009

Version: 2009/04
TABLE OF CONTENTS (1/2)
1. Macroeconomic overview Slide 1: Executive summary Slide 2: Baltic countries population, area and GDP contribution, 1H2009 Slide 3: Gross domestic product evolution, 2002- 1H 2009; GDP per capita 1H 2009 Slide 4: Inflation, C/A balance, 2002- 1H 2009 Slide 5: Wages & salaries, 2002-2009; unemployment rates 1H 2009 Slide 6: Yield curves, 1H 2009 Slide 7: CEE banking markets: size vs. growth matrix, 2006-2008 Slide 8: CEE banking penetration benchmarks - International comparison, 2008 Slide 9: Banking assets evolution by country, 2002- 1H 2009, penetration benchmarks 1H 2009 Slide 10: Top 5 banking groups in Baltic countries, combined market share, 1H 2009 Slide 11: Retail deposits & loans by country comparison; per capita benchmarks, 1H 2009 2. Estonia Slide 12: Top 10 banks by assets; market share; ownership structure, 1H 2009 Slide 13: Banking market concentration benchmarks; Herfindahl-Hirschman Index Slide 14: Customer deposits by origin evolution, 2005- 1H 2009 Slide 15: Customer loans by origin evolution, 2005- 1H 2009 Slide 16: Payment infrastructure POS, ATM penetration and evolution, 2002- 1H 2009 Slide 17: Payment cards evolution, penetration, 2002- 1H 2009
ESTONIA, LATVIA, LITHUANIA - BANKING MARKET IN THE BALTICS 2009-2011, CEE BANKING BRIEF
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TABLE OF CONTENTS (2/2)
3. Latvia Slide 18: Top 10 banks by assets; market share; ownership structure, 1H 2009 Slide 19: Banking market concentration benchmarks; Herfindahl-Hirschman Index Slide 20: Customer deposits by origin evolution, 2005- 1H 2009 Slide 21: Customer loans by origin evolution, 2005- 1H 2009 Slide 22: Payment infrastructure POS, ATM penetration and evolution, 2002- 1H 2009 Slide 23: Payment cards evolution, penetration, 2002- 1H 2009 4. Lithuania Slide 24: Top 10 banks by assets; market share; ownership structure, 1H 2009 Slide 25: Banking market concentration benchmarks; Herfindahl-Hirschman Index Slide 26: Customer deposits by origin evolution, 2005- 1H 2009 Slide 27: Customer loans by origin evolution, 2005- 1H 2009 Slide 28: Payment infrastructure POS, ATM penetration and evolution, 2002- 1H 2009 Slide 29: Payment cards evolution, penetration, 2002- 1H 2009 5. Mid-term forecasts Slide 30: Forecast : Estonia - Bank assets & asset/GDP penetration, 2009-2011 Slide 31: Forecast : Latvia - Bank assets & asset/GDP penetration, 2009-2011 Slide 32: Forecast : Lithuania - Bank assets & asset/GDP penetration, 2009-2011 6. Methodological notes
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Inteliace Research
EXECUTIVE SUMMARY BANKING MARKET IN THE BALTICS, 2009
Macroeconomic situation. The last months of the year 2008 and the first half of 2009 were not particularly successful for Baltic economies. Bursting real estate bubbles, exploding unemployment, drastic cuts in the public sectors and following dramatic drops in GDP - all those factors confirmed that Baltic countries were among regions most affected by the first wave of the worldwide economic crisis. Estonia, Latvia und Lithuania slid into a deep recession very rapidly paying the price for several years of exceptional growth fueled by the abundant funds, provided mostly by Scandinavian banks.
Banking markets. Despite the painful rebalancing of the economy, the well developed banking infrastructure including: dense branch, ATM and POS networks, as well as common use of remote banking channels place Estonia, Latvia and Lithuania still among the most advanced banking sectors in the whole Central and Eastern Europe. This is also confirmed by banking penetration benchmarks , which despite recent dips, still exceed the CEE average. Competition. In contrary to the rest of CEE, Baltic banking sectors have been historically highly concentrated. Top 5 international groups present in all 3 countries control more than 77% of combined banking assets. On the other side lack of major administrative entry barriers and current weakness of major players , make Baltic markets still interesting opportunity for new entrants.
Perspectives. The recent economic tensions forced governments in Baltic countries to apply radical public spending cuts , resulting in accelerating unemployment and a collapse in private consumption. All those factors will obviously drag down the rate of growth in all Baltic countries in the near future. Nevertheless, Baltic economies are relatively flexible, viable and of relatively small size, so after the temporary correction, they are likely to resume growth quicker than other larger countries. Inteliace Research assumes that both GDP and banking volumes in Baltic countries will keep falling through 2010 , when the trend is likely to reverse.
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TABLE OF CONTENTS
General overview
Estonia Latvia
Lithuania
Mid-term forecast Notes on Methodology
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Inteliace Research
ALMOST 7 MILLION WELL EDUCATED INHABITANTS AND 66 BILLION EUR OF GDP MAKE BALTIC COUNTRIES AN ATTRACTIVE MARKET FOR BANKING SERVICES
Baltic countries - combined statistics, 1H 2009 Percent

100%= 6.95 million 175 thsd. sq km EUR 66 billion EUR 77 billion
33 45
Lithuania
37 48
37
40 32
Latvia
Estonia
33
19 Population
26
22 GDP
27
Territory
Banking Assets
Lithuania is the largest country in the group with almost 50% share in population, 45% share in GDP, but only 33% share in banking assets. Estonia is the smallest Baltic country, but it has relatively the highest GDP contribution per capita. Latvia has the largest banking market in terms of total assets.
Source: Statistical offices, Central banks

Inteliace Research
SINCE LATE 2008, BALTIC ECONOMIES ARE EXPERIENCING A DRAMATIC REBALANCING

Gross Domestic Product Real growth rate, 2002-1H2009 Percent
7.9 7.6 7.2 9.4 10.0 7.2
Cumulated real growth index 2002-1H2009
Estonia
-3.6
10.6 12.2
GDP per capita, 2Q 2009** EUR thousand

+21%
-15.5
6.5
7.2
8.7
10.0
Estonia
11.1
Latvia
-4.6 -18.4 6.9 10.2 7.4 7.8 7.8
Latvia
9.5
+24%
Lithuania CEE15* (2008)
8.9
8.9
3.0
Lithuania
7.4
+50%
+28%
-17.0
2002
2003
2004
2005
2006
2007
2008
1H09
* Average for top 15 Countries in Central and Eastern Europe. Russia, Ukraine and Belarus not included ** Data for 4 consequtive quarters ending in June 2009 Source: Central banks, Inteliace Research Inteliace Research
AFTER REACHING ITS PEAK IN 2008, INFLATION IS SLOWING DOWN. CURRENT ACCOUNTS ARE FINALLY BALANCED
Average Inflation, 2002-1H2009 Percent

15.4
Current account balance as % GDP 1H 2008-1H2009

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 4.9
Estonia
Inflation has peaked in 2008, but since then it is falling rapidly
10.1 6.6 5.7
10.9 10.4
-9.7
-6.9
-5.1
-0.4 14.1 1.3
Latvia
7.0 6.9
-16.0
6.2 3.6 2.0 0.3 2002 2.9 1.4 -1.1 2003 1.2 2004 3.0
6.9 4.1
6.6 4.4 3.7
Lithuania
Latvia
-16.7 -15.1 -12.8 -7.8 0.4
1.4
2.7 2005
Estonia
Lithuania
-4.4 -9.8 -18.9 -15.6
-0.2
2006
2007
2008 1H09*
Drastic government spending rcuts and quickly falling inflation have contributed to significant reduction of c/a gaps in all Baltic countries.
* Average 1H 09 vs. 1H 08 Source: Central banks, Inteliace Research
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HIGH UNEMPLOYMENT IS POSING THREAT TO THE WHOLE ECONOMY. HOWEVER, FALLING WAGES ARE LIKELY TO PREVENT FURTHER JOB LOSSES
Average wages & salaries, 2002-1H2009* EUR per month

825
Unemployment rate, 1H2009* Percent

794
670
Estonia
724 601
516 393 284 294 430 285 311 466 350 300 333 430 433 522
682
Latvia Lithuania
Estonia
13.5
566 624
633
Latvia
15.3
370
Lithuania
12.8
2002
2003
2004
2005
2006
2007
2008
1H09*
In all Baltic countries unemployment is getting out of control
* Average value for the 1H of the year Source: Statistical offices, Inteliace Research
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Inteliace Research
DIVERGENCE OF INTERST RATES FROM EUROZONE IS VERY HIGH. CURRENCY BOARD EXCHANGE RATE SYSTEMS ARE STILL AT RISK
Market interest rates as of June 2009 Percent

25.40 23.60
Latvia (RIGIBOR)
24.20 20.00
Lithuania (VILIBOR)
11.40
11.60 8.56 9.54 6.88 1.31 5.70 5.58 0.75 1.09
10.32 7.85 1.42

Estonia (TALIBOR) Europe (EURIBOR)
Interest rates are significantly above Euro area levels
4.65 2.45 0.40
5.00 3.18 0.49
6.32
1 day
1 week
1 month
3 months
6 months
12 months
Source: Central Banks, Inteliace Research
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Inteliace Research
BALTIC BANKING MARKETS ARE SMALL IN RELATION TO THE OTHER CEE, BUT THEY ARE WELL-DEVELOPED IN TERMS OF ASSETS PER CAPITA
CEE15* banking markets - Size vs. growth matrix, 2006-2008
Banking assets per capita, 2008, `000 EUR
24 22 20 18 16
Moderate growth
Slovenia
Rapid growth
47.5
Czech Republic Hungary Croatia
x.x assets, 2008

Estonia**
Total banking In billion EUR data for Baltics as of 1H2009
20.8 30.9 Latvia**

Slovakia
14
12 10 8 6 4 2 0 10%
150.2
51.6
121.3
Lithuania** Poland
63.9
24.9
Romania
249.7 10.8 B&H 4.6

FYRO Macedonia
20%
Bulgaria
35.6 6.8 20.1

Albania Serbia
15%
79.0
25%
30%
Average annual assets growth (CAGR), 2006-2008, in EUR, %

* Major 15 CEE countries. Russia, Ukraine and Belarus not included ** Total assets for Baltic countries as of 1H 2009 Source: Central banks, IMF, Inteliace Research
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Inteliace Research
BANKING ASSETS PENETRATION IN BALTIC COUNTRIES IS HIGH
Banking assets/capita, 2008 EUR `000

Slovenia Estonia* Czech Rep
15.5 14.4 13.7 12.1 11.8 11.6 23.1
Banking assets/GDP, 2008 percent

Latvia* Estonia* Slovenia
144.3 140.6 127.9
Latvia*
Hungary Slovak Rep Croatia Lithuania* Poland Bulgaria Romania BiH Serbia Macedonia
4.7 3.6 2.8 2.7 2.2 2.1
Croatia
Hungary Czech Rep Bulgaria Slovak Rep BiH Lithuania* Poland Albania
124.1 116.7 109.2 104.3
7.4
6.6
94.9
85.7 83.6 82.3 78.5 69.5 65.0 63.6
CEE 15 weighted average: 7.4
Macedonia Serbia
CEE 15 weighted average: 94
Albania
Romania
* Baltic countries as of 1H 2009 Source: Central banks, IMF, Inteliace Research
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Inteliace Research
ASSETS HAVE BEEN GROWING QUICKLY IN ALL BALTIC COUNTRIES IN THE RECENT YEARS
Banking assets evolution, 2002-1H 2009 EUR billion
23.7 21.8
CAGR*
Banking assets/GDP ratio, 1H 2009, Percent

Estonia
141
Estonia
5.2
6.3
8.5
11.8
15.3
20.5
20.8
Latvia Lithuania
25.0 22.6 31.2 33.1 30.9 ~77 bn EUR in 1H2009 84
144
+73%
Latvia
7.3
8.5
11.2
15.6
Banking assets per capita, 1H 2009, EUR thousand

Estonia
15.5 13.7 7.4
+109%
28.1
Lithuania
5.0 2002 6.4 2003 8.4 2004
13.0
17.1
23.4
26.0
24.9
Latvia Lithuania
2005
2006
2007
2008
1H09
* Compound Annual Growth Rate ** Data from the Central Bank's Balance of Payment Statistics Source: Central banks, Inteliace Research
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Inteliace Research
TOP 6 GROUPS CONTROL ALREADY 82% OF TOTAL ASSETS IN BALTIC MARKETS

As of 1H 2009
Rank
1
Bank
Controlled assets EUR billion

22.8
Combined market share* percent

29.9
Countries and type of presence EE LV

S S
LT
S
15.8
20.6
S,B
8.8
11.5 8.6
B B
B S
6.5
4.4
5.8 5.3
B B
S B
B: foreign branch S: local subsidiary
S B
4.0
TOP 6 total
* Total for all 3 Baltic markets Source: Banks, Inteliace Research
Inteliace Research
82
Largest market For the group
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WITHIN RETAIL BANKING, THE PENETRATION OF LENDING VARIES SIGNIFICANTLY WHILE PENETRATION OF DEPOSITS IS MORE BALANCED
Comparison of retail banking volumes in Baltic countries, 1H 2009
Outstanding value EUR billion

Lithuania
7.1 4.1 3.9
Per capita EUR thousand

2.1 1.8 2.9 In nominal terms, retail volumes are highest in Lithuania and Latvia Estonian market is small but it is characterized by highest values per capita The retail lending exceeds retail deposits already in all Baltic markets
Retail deposits
Latvia Estonia
Lithuania
8.5 8.9 7.6
2.6 3.9 +122%
Retail loans
Latvia Estonia
5.7
Source: Central banks, Inteliace Research
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Inteliace Research
TABLE OF CONTENTS
General overview
Estonia Latvia
Lithuania
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Inteliace Research
SWEDBANK IS CONTROLLING ALMOST 50% OF BANKING ASSETS IN ESTONIA

Top Commercial banks in Estonia, as of 1H 2009
Bank
Swedbank SEB Nordea Danske Krediidipank DnB Nord BIG UniCredit
0.4 0.2 0.2 0.2 0.1 0.1 3.1 2.0 4.3
Assets, EUR billion

10.2
Market Share* by Assets, %

48.9 20.9
Foreign bank branches
Majority Shareholder (stake)

Swedbank (100%) SEB (100%) Branch of Nordea Bank Finland
14.7
9.5 1.8 1.1 0.9 0.8 0.7 0.5 >99
Branch of Danske Bank

JSC Latvian Business Bank (89%) Branch of DnB Nord Private individuals Branch of UniCredit
Leonarda Invest (22%), other corporate
ripanga
Parex Total TOP 10 = 20.7
Source: Central bank, press, Inteliace Research
Branch of Parex Latvia
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Inteliace Research
BANKING MARKET IN ESTONIA IS HIGHLY CONCENTRATED
Banks by assets size groups, 1H 2009 percent
Herfindahl-Hirschman** Index, 1H 2009 points, nonlinear scale

3133
1 000 1 800 10 000
Assets size
Big >3bn EUR Mid-size 1bn-3bn EUR
18 banks*
3 1
100%= EUR 20.8 bn

low medium high
Share of top banks, 1H 2009, percent

84
Estonia
Poland
Small <1 bn EUR
14 TOP 10 9 6
No of banks Total Assets
99.7
64.2
TOP 5
95.7
45.5
TOP 3
84.4
33.6
* Including 7 local banks and 11 foreign bank branches, of which only 2 foreign branches have significant business size ** Markets in which the HHI is between 1000 and 1800 points are considered to be moderately concentrated, and those in which the HHI is in excess of 1800 points are considered to be concentrated. Inteliace Research Source: Central Bank, Inteliace Research
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THE VALUE OF DEPOSITS IS STAGNATING SINCE 2007. NON-RESIDENTS ACCOUNT STILL FOR 25% OF ALL DEPOSITS IN ESTONIA
Customer deposits evolution, 2005-1H2009 EUR billion, percent
12.3 10.3
6 5 26
Deposits growth is decelerating The role of external funding remains high
CAGR* 2005-1H 2009 15 11

12.6
5 25
12.9
5
25
18
100% = 7.9 Government*** Non-Residents Retail Corporate**

6 23 29
24 28 29 30
30
16
42
41
41
40
39
13
2005
GDP penetration in %
2006
78
2007
79
2008
78
2Q 2009
87
70
* Compound Annual Growth Rate ** Including non-monetary financial institutions and public enterprises *** Including central and local government but excluding public enterprises classified as corporate sector Source: Central Bank, Inteliace Research Inteliace Research
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LENDING VOLUMES ARE SHRINKING SINCE 2008. SHARE OF RETAIL LOANS IS INCREASING
Customer loans evolution, 2005-1H2009 EUR billion, percent
17.4 15.9
4 1 4 2
CAGR* 2005-1H2009 22
16.4
2 3
28 17 28
11.7 100% = 8.2 Government*** Non-Residents Retail Corporate**

3 39 51 51 49 2 3 44 2 44 44 46
49
17
56
2005
2006 88
2007 102
2008 108
2Q 2009 111
74
* Compound Annual Growth Rate ** Including non-monetary financial institutions and public enterprises *** Including central and local government but excluding public enterprises Source: Central Bank, Inteliace Research
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Inteliace Research
ESTONIA HAS THE MOST DEVELOPED PAYMENT INFRASTRUCTURE AMONG BALTIC COUNTRIES
ATMs per capita, 1H2009 Per 1 thousand inhabitants
Estonia
918 1,000 1,018 1,021 0.76 0.58 0.46 0.98
Number of ATMs, 2002-1H2009

5.5 719 747 779 841
Latvia Lithuania
2002
2003
2004
2005
2006
2007
2008
2Q 2009
Euro Area (2008)
Number of POS terminals, 2002-1H2009
POS per capita, 1H2009 Per 1 thousand inhabitants

Estonia
12.7 10.7 12.8 19.1
13.7 9,184 11,113 12,730 14,665 15,819 16,194 16,976
Latvia Lithuania
7,353
2002
2003
2004
2005
2006
2007
2008
2Q 2009
Euro Area (2008)
Source: Central Bank, Inteliace Research
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Inteliace Research
CARDS PENETRATION IN ESTONIA IS ALSO SIGNIFICANTLY HIGHER THAN IN OTHER BALTIC COUNTRIES
Number of payment cards, 2002-1H2009 Thousand Payment cards per capita ratio, 1H2009
8.0 1,120 1,198 1,304 1,420 1,617 1,772 1,855 1,850
Estonia
2002 2003 2004 2005 2006 2007 2008 2Q 2009
1.38
Latvia
1.11
Number of credit cards*, 2002-1H2009 Thousand

17.6 266 344 421 445
Lithuania Euro area (2008)
1.30
1.47
444
155 2002
186 2003
233
2004
2005
2006
2007
2008
2Q 2009
* subcategory included in above payment card statistics Source: Central Bank, Inteliace Research
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Inteliace Research
TABLE OF CONTENTS
General overview
Estonia Latvia
Lithuania
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Inteliace Research
FOREIGN INDUSTRY PLAYERS CONTROL 6 OUT OF 10 MAJOR BANKS IN LATVIA

Top 10 commercial banks in Latvia, as of 1H 2009
Bank Swedbank SEB banka Parex Nordea DnB NORD Rietumu Hipotku Aizkraukles UniCredit Krajbanka
1.5 1.5 1.4 1.1 0.8 2.6 4.2 Foreign bank branches
Assets, EUR billion

7.1
Market Share by Assets, % Majority Shareholder (stake) 23.0 13.5 12.4 10.9 8.5 4.8 4.7 4.6 3.7 2.5 88.7
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Inteliace Research
Swedbank (100%) SEB (100%) Latvian Privatization Agency (70%) Branch of Nordea Bank Finland DnB Nord (99.8%) Private individuals State Treasury (100%)
3.8
3.4
Private individuals
UniCredit (100%) AB Snoras Bank (77%)
Total TOP 10 = 27.5

Source: Central bank, press, Inteliace Research
BANKING MARKET IN LATVIA IS MODERATELY CONCENTRATED

1157 1 000 1 800 10 000
Assets size
27 banks*
Big >3bn EUR Mid-size 1bn-3bn EUR 4 5
100%= EUR 30.9 bn

low 60 medium high

Latvia Poland
Small <1 bn EUR
18 26 14 Number of banks Total Assets
TOP 10
88.7
64.2
TOP 5
68.4
45.5
TOP 3
48.9
33.6
* Local banks and foreign banks branches ** Markets in which the HHI is between 1000 and 1800 points are considered to be moderately concentrated, and those in which the HHI is in excess of 1800 points are considered to be concentrated. Inteliace Research Source: Central Bank, Inteliace Research
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DEPOSITS IN LATVIA HAVE BEEN DECREASING SINCE 2007
Customer deposits evolution, 2005-1H2009 EUR billion, percent

14.2
2
CAGR* 2005-1H2009 13.8

9 45 39
13.2
9
12 97
11.0 Government*** Non-Residents (non-monetary) Retail Corporate** 100% = 8.8

1 47 35 30 21 2005 GDP penetration in % 23 2006 22 2007 31 2 39
36
30
31
13
15 22 2008 24 2Q 2009
68
69
68
60
61
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Inteliace Research
VALUE OF LOANS IS FALLING AFTER THE PERIOD OF EXPLOSIVE GROWTH THROUGH 2008
CAGR* 2005-1H2009
27 17 29
23.6
20.6
9
0
1 11
22.8
1
11
15.4
9
1 41
39
39
31
100% = 9.9 Government*** Non-Residents Retail Corporate**

11 35 53 2005 GDP penetration in % 51 49 1
40
49 49
24
2006
2007
2008
2Q 2009
77
97
98
102
106
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Inteliace Research
PAYMENT INFRASTRUCTURE IN LATVIA IS DEVELOPING FAST BUT A GAP AGAINST OTHER COUNTRIES EXISTS
Estonia
957 1,143 1,274 1,302 0.76 0.58 0.46 0.98

6.9 842 868 875 878
Latvia Lithuania
2002
2003
2004
2005
2006
2007
2008
2Q 2009
Euro Area (2008)

17.8 15,170 8,326 10,268 18,495 17,571 20,367 23,350 24,175

Estonia Latvia Lithuania
12.7 10.7 12.8 19.1
2002
2003
2004
2005
2006
2007
2008
2Q 2009
Euro Area (2008)
Source: Central Bank, ECB, Inteliace Research
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Inteliace Research
SIMILARILY TO PAYMENT INFRASTRUCTURE, LATVIA HAS ALSO THE LOWEST CARD PENETRATION RATIO AMONG BALTIC COUNTRIES
Number of payment cards, 2002-1H2009 Thousand
Payment cards per capita ratio, 1H2009

Estonia
14.9 2,107 1,711 1,022 1,176 1,365 2,389
1.38
2,518
2,516
Latvia
1.11
1.30
1.47
2002
2003
2004
2005
2006
2007
2008
2Q 2009
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Inteliace Research
TABLE OF CONTENTS
General overview
Estonia Latvia
Lithuania
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Inteliace Research
SEB AND SWEDBANK CONTROL MORE THAN 50% OF BANKING ASSETS IN LITHUANIA
Top commercial banks in Lithuania, as of 1H 2009
Bank
SEB Vilniaus Swedbank
5.5 3.6 2.3 1.7 1.6 1.2 0.6 0.4
Assets, EUR billion

7.2
Market Share by Assets, % Majority Shareholder (stake)

29.0 22.1 14.7 9.4 6.8 6.5 4.9 2.4 1.8 1.3
Foreign bank branches
SEB (100%)
Swedbank (100%)
DnB NORD A/S (100%) Branch of Nordea Finland Branch of Danske Bank Private individuals Private individuals EBRD (16%) Parex Bank Latvia (100%) Branch of UniCredit
DnB NORD
Nordea Danske Bank Snoras
kio
iauli Parex
UniCredit
Total TOP 10 = 24.6
Source: Central banks, press, Inteliace Research
0.3
98.9
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Inteliace Research
BANKING MARKET IN LITHUANIA IS SIGNIFICANTLY CONCENTRATED

1766
1 000 1 800 10 000
Assets size
Big >3bn EUR Mid-size 1bn-3bn EUR
15 banks*
3
100%= EUR 24.9 bn

low medium high
66

Lithuania Poland
Small <1 bn EUR
8 27
TOP 10
98.9
64.2
TOP 5
81.9
45.5
7
Number of banks Total Assets TOP 3
65.8
33.6
* Of which 8 locally registered banks + 7 branches of foreign banks . ** Markets in which the HHI is between 1000 and 1800 points are considered to be moderately concentrated, and those in which the HHI is in excess of 1800 points are considered to be concentrated. Inteliace Research Source: Central Bank, Inteliace Research
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CUSTOMER DEPOSITS STAGNATE SINCE 2007
Customer deposits evolution, 2005-1H 2009 EUR billion, percent

11.6 9.5
Non Residents Government*** 8 7 9 7 7 10 58 56 Retail 53 64 63
CAGR* 2005-1H2009 11.2

6 5
11.3
6 7
11 -3 11
100% = 7.8
17
Corporate** 30 2005
27 2006
27
25 2008
24 2Q 2009
2007
37
40
41
35
38
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Inteliace Research
LENDING VOLUMES ARE FALLING SINCE 2008. CORPORATE VOLUMES SUFFER MOST
21.1 17.6
1
2 2 41 43 2
CAGR* 2005-2009
20.0
3
26
3
48 16 39
12.3
NonResidents Government*** Retail Corporate**
100% = 8.9
3 31 1
2 37
41
55 65 59
54
52
19
2005
2006
2007
2008
2Q 2009
43
51
62
65
67
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PAYMENT INFRASTRUCTURE IN LITHUANIA IS IMPROVING QUICKLY BUT IT IS STILL BEHIND ITS REGIONAL PEERS
Estonia
1,146 1,332 1,489 0.76 0.58 0.46 0.98

8.8
1,537
889
994
1,012
1,053
Latvia Lithuania
2002
2003
2004
2005
2006
2007
2008
2Q 2009
Euro Area (2008)

42,986 30,408 10,340 11,037 13,556 18,351 20,787 42,805

Estonia Latvia Lithuania
12.7 10.7 12.8 19.1
24.4
2002
2003
2004
2005
2006
2007
2008
2Q 2009
Euro Area (2008)
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Inteliace Research
CARDS PENETRATION IN LITHUANIA IS SIGNIFICANTLY HIGHER THAN IN LATVIA BUT STILL LOWER THAN IN ESTONIA
Number of payment cards, 2002-1H2009 Thousand
Payment cards/capita ratio, 1H 2009

Estonia
11.5
3,880 3,090 2,148 2,538 2,618 3,463 4,282 4,356
1.38
Latvia
1.11
1.30
1.47
2002
2003
2004
2005
2006
2007
2008
2Q 2009
36
Inteliace Research
TABLE OF CONTENTS
General overview
Estonia Latvia
Lithuania
Mid-term forecast Note on Methodology
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Inteliace Research
BANKING ASSETS IN ESTONIA ARE LIKELY TO STABILIZE THROUGH 2010 WHEN THE GROWTH IS EXPECTED TO RESUME
Banking assets in Estonia, 2006-2011F In EUR billion
x.x
CAGR 09-11 2%
20.5 15.3
21.8
20.3
20.1
21.3
After a sharp fall of banking volumes in 2009, the total assets of banks in Estonia are expected to stagnate in 2010
Volumes growth is expected to resume in 2011
2006
GDP penetration in % 116
2007
131
2008
136
2009F
149
2010F
145
2011F
147
Source: Inteliace Research
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Inteliace Research
BANKING ASSETS IN LATVIA ARE LIKELY TO STAGNATE WITHIN NEXT YEARS
Banking assets in Latvia, 2006-2011F In EUR billion
x.x
CAGR 09-11 -1%
31.2 22.6
33.1
29.7
28.5
29.3
Bank assets are expected to fall in the near future and then to stabilize on a lower level The extremely high Assets/GDP penetration is likely to fall
2006
2007
148
2008
143
2009F
152
2010F
147
2011F
145
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Inteliace Research
BANKING ASSETS IN LITHUANIA MAY REBOUND IN 2011
Banking assets in Lithuania, 2006-2011F In EUR billion
x.x
CAGR 09-11 +3%
23.4 17.1
26.0
24.2
24.2
25.9
Bank assets are expected to stagnate in 2009 and 2010 The GDP penetration will also stabilize
2006
2007
82
2008
81
2009F
90
2010F
88
2011F
89
40
Inteliace Research
NOTE ON METHODOLOGY
FX rates: As a general rule all balances like: assets, deposits, loans and similar volumes have been converted from the local currency into Euro using end of year exchange rate Exchange rates used in the report:
EUR / FX EEK LVL 2002 15.65 0.61 3.45 2003 15.65 0.67 3.45 2004 15.65 0.70 3.45 2005 15.65 0.70 3.45 2006 15.65 0.70 3.45 2007 15.65 0.70 3.45 2008 15.65 0.70 3.45 1H2009 15.65 0.70 3.45
Estimates and Forecasts:
LTL
In some cases, recent or verified data was not available. Therefore, necessary short-term estimations have been done to fill the gaps. Estimates are always indicated with the letter E
When preparing forecasts/estimates we have built models using latest observed trends, available forecasts of main economic indicators, seasonal changes observed in the past and other specific factors considered important.
Multiple sources: In some cases multiple sources of similar data exist. In this situation we always try to select the most appropriate one /in our view/. The source is indicated in the footer area of each slide. Nevertheless in specific cases, before interpreting the data it is recommended to get a good understanding on the methodology of data collection.
41
Inteliace Research
About this report

This report has been prepared using publicly available sources including: financial reports, press publications, industry magazines, directories, financial databases and expert opinions. Views presented in this report reflect solely independent and unbiased opinion of Inteliace Research and the author. All due care has been taken in the production of this report, however Inteliace Research does not accept any responsibility or liability for any omissions or inaccuracies of the information contained in this publication. This report is copyrighted. Any distribution, storage, replication and usage is restricted. In case of any doubt please contact us at:
info@Inteliace.com
About Inteliace Research

Inteliace Research is an independent and privately owned research firm based in the heart of Eastern Europe in Warsaw / Poland. Our company is specializing in value-added research services and tailored business intelligence solutions.
Through our customized research services we help our clients to better understand their consumers, competitors and overall market dynamics. The lead researcher and founder of Inteliace Research is Marcin Mazurek. Our contact details: Inteliace Research Tel. +48 50 251 21 78, Fax. +48 22 408 66 20 mail: info@Inteliace.com url: www.Inteliace.com
Inteliace Research

Estonia, Latvia, Lithuania - Banking Markets in The Baltics 2009-2011 - Cee Banking Brief

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Estonia, Latvia, Lithuania - Banking Markets in The Baltics 2009-2011 - Cee Banking Brief

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ESTONIA, LATVIA, LITHUANIA - BANKING MARKETS IN THE BALTICS 2009-2011 - CEE BANKING BRIEF

by Inteliace Research November 2009

TABLE OF CONTENTS (1/2)

TABLE OF CONTENTS (2/2)

EXECUTIVE SUMMARY BANKING MARKET IN THE BALTICS, 2009

Baltic countries - combined statistics, 1H 2009 Percent

Source: Statistical offices, Central banks

SINCE LATE 2008, BALTIC ECONOMIES ARE EXPERIENCING A DRAMATIC REBALANCING

Cumulated real growth index 2002-1H2009

GDP per capita, 2Q 2009** EUR thousand

Average Inflation, 2002-1H2009 Percent

Current account balance as % GDP 1H 2008-1H2009

10.1 6.6 5.7

-0.4 14.1 1.3

6.6 4.4 3.7

Average wages & salaries, 2002-1H2009* EUR per month

Unemployment rate, 1H2009* Percent

In all Baltic countries unemployment is getting out of control

Market interest rates as of June 2009 Percent

11.60 8.56 9.54 6.88 1.31 5.70 5.58 0.75 1.09

10.32 7.85 1.42

Interest rates are significantly above Euro area levels

4.65 2.45 0.40

5.00 3.18 0.49

Source: Central Banks, Inteliace Research

Czech Republic Hungary Croatia

x.x assets, 2008

Total banking In billion EUR data for Baltics as of 1H2009

20.8 30.9 Latvia**

249.7 10.8 B&H 4.6

35.6 6.8 20.1

Average annual assets growth (CAGR), 2006-2008, in EUR, %

BANKING ASSETS PENETRATION IN BALTIC COUNTRIES IS HIGH

Banking assets/capita, 2008 EUR `000

Banking assets/GDP, 2008 percent

124.1 116.7 109.2 104.3

CEE 15 weighted average: 7.4

CEE 15 weighted average: 94

* Baltic countries as of 1H 2009 Source: Central banks, IMF, Inteliace Research

Banking assets/GDP ratio, 1H 2009, Percent

Banking assets per capita, 1H 2009, EUR thousand

TOP 6 GROUPS CONTROL ALREADY 82% OF TOTAL ASSETS IN BALTIC MARKETS

Controlled assets EUR billion

Combined market share* percent

Countries and type of presence EE LV

Largest market For the group

Outstanding value EUR billion

Per capita EUR thousand

8.5 8.9 7.6

2.6 3.9 +122%

Source: Central banks, Inteliace Research

SWEDBANK IS CONTROLLING ALMOST 50% OF BANKING ASSETS IN ESTONIA

Assets, EUR billion

Market Share* by Assets, %

Foreign bank branches

Majority Shareholder (stake)

Branch of Danske Bank

Branch of Parex Latvia

BANKING MARKET IN ESTONIA IS HIGHLY CONCENTRATED

Banks by assets size groups, 1H 2009 percent

Herfindahl-Hirschman** Index, 1H 2009 points, nonlinear scale

100%= EUR 20.8 bn

Share of top banks, 1H 2009, percent

100% = 7.9 Government* Non-Residents Retail Corporate

11.7 100% = 8.2 Government* Non-Residents Retail Corporate

11.0 Government* Non-Residents (non-monetary) Retail Corporate 100% = 8.8

100% = 9.9 Government* Non-Residents Retail Corporate