Estonia, Latvia, Lithuania - Banking Market - In The Baltics 2009 -2011 , CEE Banking Brief

Intelace Research
October 1, 2009
41 Pages - SKU: INTL2492626
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Countries covered: Estonia, Latvia, Lithuania

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 and dramatic downturns in the GDP -all those factors unfortunately confirm that Baltic countries are among regions most affected by the current 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 excessive use of easily available credit, provided mostly by Scandinavian banks.

Banking markets. Baltic banking markets have been flourishing up to 2007 when the upward trend of the economy halted and the explosive expansion of lending and deposits reversed. However, despite the painful correction, 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 markets in Central and Eastern Europe. This can be also confirmed by common banking penetration benchmarks , which despite the recent correction still exceed the CEE average.

Competition. In contrary to the rest of CEE, Baltic banking markets 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 , makes Baltic markets still an interesting opportunity for new entrants, enabling both M&A or “greenfield” approach.

Perspectives. The recent economic tensions forced governments in Baltic countries to apply radical public spending cuts which contributed to accelerating growth in unemployment and resulted in a true collapse of 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. Intelace Research assumes that both GDP and banking volumes in Baltic countries will keep falling through mid-2010 , when the trend is likely to reverse


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