Number of banks in Latvia, Lithuania will drop upon switch to euro - Estonian banker

Photo: SCANPIX

After Latvia and Lithuania's transition to the euro the number of commercial banks will probably decline in both countries, CEO of the Estonian unit of Danske Bank Aivar Rehe said in an interview with BNS.

"Latvia is currently living in an exciting year, the year of changeover to the euro," Rehe said. "It can be seen that the Latvian government and central bank are taking vigorous steps in preparation for assessment of euro readiness. The process shows that they wish to obtain the approvals in principle before summer. Fixing the conversion rate is a very important part of this."

The final decision on Estonia's entry into the eurozone was taken in July 2010. "This left banks with five short months to reach the finishing line," Rehe observed. "The Latvians started active preparations considerably sooner, the government has just submitted the respective application. This means that they want to get the last binding decisions on euro adoption in the second quarter after which the local banks and businesses can tackle practical challenges."

In addition to Latvia also Lithuania and Poland have expressed at the government level their wish to adopt the common currency, Rehe said. "I'd single out Poland as a country with a very big role in European economy as well as a connection between old Europe and Eastern Europe, in a manner of speaking," the banker said. "My guess is that Lithuania too will now move from talk to action. And 2015 could be a realistic target for euro adoption."

The switch to the common currency in Latvia and Lithuania will significantly change banking services in those countries, Rehe predicted. "I believe that the number of banks will drop in both countries mostly through mergers and acquisitions. Looking at the history of bank consolidation, Estonian banking led mainly by Scandinavian banks is clearly operating with higher efficiency but this has not sufficiently materialized in Latvia and Lithuania."

In Rehe's words, the strategically most important thing is for euro accession to work in reality. "We are at present talking about how the economies of a part of European countries need to be rescued and financial difficulties have to be overcome, on the one hand. On the other, there are countries that are about to join euro integration processes. This testifies that the euro is becoming a global currency," he said.

Latvian Prime Minister Valdis Dombrovskis, Finance Minister Andris Vilks and central bank governor Ilmars Rimsevics signed on Monday the country's application to the European Commission and the European Central Bank to assess its euro readiness.

The Lithuanian government's target for joining the common currency is 2015 and Polish Prime Minister Donald Tusk said in February that his country should meet euro adoption criteria in 2015 or 2016.