The new bank formed from the merger of Nordea and DNB could strengthen competition in retail banking in Estonia



  • The newly created bank will increase the volume of assets in the Estonian banking sector by around 40%
  • The new bank will be the second biggest in the Baltic states
  • The new bank could strengthen competition in the market for banking services for private clients in Estonia
  • Financial stability in Estonia will start to be affected by risks to the banking markets in Latvia and Lithuania

The merger of the Baltic operations of Nordea and DNB banks as a new independent Baltic bank with headquarters in Estonia and branches in Latvia and Lithuania will mean that the Latvian and Lithuanian banking markets will become more important in terms of risks to financial stability in Estonia.

Deputy Governor of Eesti Pank Madis Müller said that the creation of the second largest bank in the Baltic region is the biggest news in recent years in the Estonian financial market and could lead to increased competition in retail banking. “Danske recently withdrew from retail banking in Estonia, which did not have a good impact on competition. Meanwhile DNB bank has not been active in retail banking before now. I hope that the launch of the big, new universal bank focusing on the Baltic states will lead to stronger competition than there has been, especially in the market for banking services aimed at private clients. Competition is a force that drives development, and so this merger is good news.”

The Nordea and DNB banking groups unveiled their programme on Thursday, and it will see them set up a new and independent bank built on their existing Baltic operations, with its head office in Estonia and branches in Latvia and Lithuania. If the plan is approved by the different national authorities, it will create the second biggest bank in the Baltic states, and the volume of assets in the Estonian banking sector will increase by some 40% after the merger.

If the head office of the big new bank is in Estonia and branches in Latvia and Lithuania, the stability of the financial sector in Estonia will start to be affected directly by events in banking in Latvia and Lithuania. “The size of the new bank means it will be systemically important for Estonia. The risks to Estonian banking will start to depend more on Latvia and Lithuania if the new bank has a lot of business there. If the creation of the new bank is approved, Eesti Pank will need to start paying more attention to the markets in Latvia and Lithuania when we analyse the risks to our financial stability, and additional capital buffers will need to reflect that”, said Mr Müller.

Both Nordea and DNB are among the leading banks in Scandinavia and as owners with equal voting rights, both have confirmed their readiness to provide additional funds for the Baltic bank if needed. Mr Müller said that having such strong ownership behind the bank is important for the stability of the Estonian financial sector.

The size of the balance sheet of the new bank means it will be supervised by the European Central Bank working together with the Financial Supervisory Authority.

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Viljar Rääsk
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