Finland’s banking sector is the most concentrated in the Nordic region and is tipped to grow faster than its neighbours. 

Finland is the most concentrated of the Nordic banking markets following consolidation which has left the pan-Nordic Nordea Group, the OKO Bank Group and Sampo Group as the dominant players accounting for more than 85% of the market.

Finland is also the country with the largest penetration of e-banking services in the world. More than 40% of Nordea customers in Finland, for example, use various internet and related services; and new mobile facilities are likely to bring even greater usage.

Finland’s relatively small population, 5.2 million and economy, E140bn ($164bn), should not be underestimated – companies such as Nokia are world leaders in their fields. As the only country in the region that is both a member of the European Union and the European Monetary Union, Finland has been able to maintain a stable economic course. According to Citigroup Smith Barney, it is likely to have the highest growth rate in the Nordic area this year of 1.8% and is also forecast to grow fastest in 2004 at 2.8%.

From crisis to strength

As in Sweden and other Nordic countries, the banking sector has been strongly influenced by the crises of a decade or more ago and this has led to an ultra-conservative lending culture that has helped to strengthen the sector. “We had the worst crisis in the early 1990s and all those that survived will never forget it. That is why the loan books of the banks are of a high quality,” explains Bjorn Wahlroos, president and CEO of Sampo.

It is not surprising that the three major banks adopt different market approaches because of their differing size and structure. Nordea is an even more powerful force in Finland than it is in Sweden. It occupies about 40% of the retail market, which accounts for about one third of the group’s total deposit base. According to officials, it also accounts for 80%-90% of the corporate market.

Given that the Nordea Group’s balance sheet is E250bn – almost five times that of OKO and Sampo combined – it is clear that it has by far the greatest capacity in the corporate sector and the smaller banks are forced to focus on other areas. “Sampo is not that interested in lending. We don’t see ourselves as having competitive advantage in lending. The bigger clients are better served by the capital markets and the global banks,” says Mr Wahlroos.

Some 13 foreign banks are present (eight with branches and five with representative offices) but their market share in deposits and lending is seen as modest, with their prime focus on international and capital markets.

Although all the Finnish banks remain quite profitable by European standards, the combined operating profit (including Nordea’s retail operations and Sampo’s banking franchise) decreased by 8% in 2002 to E1.45bn. The main reason for the decline in profits, according to Kyllikki Pankakoski, vice president of OKO, was the reduction in net interest income, but other operating income also decreased and costs were up by 2%.

As in Sweden, loan losses in Finland remained at an exceptionally low level and have not exceeded 0.1% of net loans and contingent liabilities for the past four years. “Loan losses should rise to more normal levels in the coming years as the amount of reversals diminishes and economic growth slows down. However, this will pose no real threat to Finnish banks’ sound profitability,” says Pankakoski.

While Nordea’s 415 branches and 10,500 employees in Finland may have more financial clout, OKO’s network of 692 branches, 8937 staff in its 243 member co-operative banks packs a powerful retail punch. It claims a 32.7% market share of deposits and 31.4% of credits along with 15% stakes in the growing mutual funds and pension insurance sectors.

A different approach

The much smaller Sampo Group, however, is focusing on meeting the needs of what CEO Mr Wahlroos describes as Europe’s fastest growing investment and savings market. Born out of a merger in 2001 between Finland’s leading insurance company Sampo and the Leonia banking group, it has added in Mandatum, a private and investment specialist, and integrated a number of property and casualty insurance companies. Sampo is now able to provide a broad suite of products for its 1.2 million retail and 80,000 corporate customers, achieving a 23% market share in new pension insurance and 40% of corporate payment transactions. It has also become the largest fund management company in the country, now accounting for 24.5% of the mutual funds market.

Mr Wahlroos expects to strengthen Sampo’s asset management capabilities and take advantage of the increased savings trend. But, as the third largest shareholder in the group himself, he is also looking further ahead to who will be the future shareholders of the group. The key factor is that the high ownership concentration in the market precludes any domestic mergers and the only possible buyers would be major global players.

Acquisition targets

Yet a global outfit is likely to want to buy a group with a pan-Nordic flavour, not a group predominantly in one Nordic country. Nordea is the obvious first target in any future acquisition play, so Sampo and Mr Wahlroos may have to wait and watch.

In 2001, Sampo along with Nokia, Accenture and 3I, founded a financial software company headquartered in Helsinki called Meridea. This initiative is aimed at developing “mobility led financial services” and Meridea is on the verge of launching an integrated mobile banking service.

Meridea’s CEO, Esa Tihila, believes there will be a boom in mobile banking and a “wave of change” enabled by many underlying technologies. He told The Banker that enhanced phones (featurephones) will start to dominate the handset segments in western Europe in 2004 with smartphones achieving similar status by 2007-8, as the mobile device becomes the centrepiece of people’s life management. Bankers expect this important new mobile development to be launched in mid-June.

Nordic Investment Bank

Tucked away in the backstreets of Helsinki is a bank run by an agreeable Icelandic economist. Like its big brother in Brussels, the European Investment Bank, this bank keeps a relatively low profile and similarly it has considerable financial muscle. Although the Nordic Investment Bank (NIB) may not be a household name, even in the Nordic region, its mission gives it an important development role across the region, in neighbouring countries and in emerging economies across the globe stretching from Egypt to Brazil.

A multilateral financial institution owned by the five Nordic countries (Denmark, Finland, Iceland, Norway and Sweden), NIB finances cross-border investments within the Nordic countries as well as industrial and infrastructure projects. Priority is given to projects that improve the environment and outside the region the bank gets involved in financings of mutual interest to borrower and Nordic countries, generally long-term loans of up to 20 years’ duration.

NIB chief executive Jon Sigurdsson highlights the bank’s active involvement in Northern Dimension Environmental Partnership (NDEP), a multilateral body set up in 2001 to improve the environment in the Baltic Sea and Barents Sea regions. In short, the NDEP is a global effort to work with Russia to clean up nuclear waste, rusting Russian submarines and other detritus. The NIB is lead financing six of the 12 NDEP projects with an estimated investment of E1.3bn, including a waste water treatment plant in St Petersburg.

The NIB is also active in the Baltics, investing in small banks and small and medium enterprises.

At the end of 2002, NIB had E10.1bn in loans outstanding, 80% to the Nordic countries with the Swedes and Finns the major borrowers. The remainder was led by Asian borrowers (8%) and the Baltics and Poland (3.5%).

Using its AAA rating NIB raised E3.7bn in the capital markets last year and in mid-April this year raised a further E1bn in an issue led by HSBC, BNP Paribas and Morgan Stanley. Sigurdsson hopes to expand NIB’s lending and borrowing activities and build awareness in the US investment community.


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