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Estonian bank LHV is looking to fill the gap left in the home loans market by the recent departure of DNB and Danske by offering loans to Estonians in Tallinn and Tartu.
LHV aiming for wealthier Estonians
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“Indeed, today (yesterday – ed.) is the day we can say LHV will become the home bank of a lot of Estonians,” said head of retail banking Andres Kitter. He added that the bank's clients have been asking after home loans for some time, and that it is probable many people have held off on switching banks because of their absence.
LHV will finance its home loans using deposits. The latter exceed the bank's loans by roughly 200 million euros. “It is the only source we will use to finance loans,” Kitter said. The number of loans to be issued will depend on projects people are looking to finance. “The portfolio will surely be affected by the bank's general growth, its deposits base,” Kitter noted.
LHV has been providing private mortgage-backed loans for several years, while they have generally been aimed at heads of companies and other wealthy clients. Solvency will be an important criterion also in terms of the new instrument.
Because the real estate market is most active in Tallinn and Tartu, Kitter believes that is where the bank will see most applications. “Of course we can finance objects outside of these areas; however, in those cases we will be looking carefully at liquidity and quality and will run more thorough background checks on clients,” Kitter said.
No new issue
Even though the bank could consider a new issue of securities in the near future, it will rather be based on general growth of business volume. “Home loans will not raise the latter sufficiently on their own, We will not issue new shares or bonds,” Kitter affirmed.
Neither the bank's representative nor competitors were willing to comment on how profoundly LHV's news could affect current market share. “It is definitely not a product aimed at aggressive price competition. On the other hand, we are a listed company, and we want shareholders to be happy with LHV,” the head of retail banking said.
Kitter added that the new service could mean some transactions are not pursued should productivity fail to meet expectations. The bank will not be offering additional services, like insurance for example, at this time. The bank also does not plan to start bidding for existing loans to quickly grow its market share.
CEO of Endover Real Estate Robert Laud said that LHV's decision to come out with a home loan of its own could be tied to the strong situation of the real estate market. Looking at the housing market, there is a lot of construction, and everything that is built gets bought.
Laud said that market balance is the result of the highest employment rate and fastest salary growth – that has even outpaced real estate price advance at times – in 20 years, as well as the fact that the Estonian real estate market is Tallinn-based in a situation where the capital's population and therefore demand for homes are growing
“Home loans are the fuel in real estate developers' engines that keeps the wheels spinning,” Laud said. He added that most people still use loans to buy homes.
Looking at the loans market, data from the end of 2015 has Swedbank in the lead with 40 percent, followed by SEB with 24 percent, and Nordea with 16 percent. Swedbank's lead is even bigger in terms of private loans (46 percent), SEB and Nordea follow on 26 and 14 percent respectively.
Competition welcome
“There is someone offering discount deals on the banking market at any given moment; that is the status quo situation in Estonian banking. Which is why additions to the home loans market are welcome,” said head of retail banking and technology at SEB Ainar Leppänen.
Head of loan products at Nordea Ivika Pääsuke-Kästik also said the bank welcomes competition: “Nordea has been a strong and competitive home loan issuer for some time, and LHV is like any other competing bank active in Estonia.”
Conditions offered by LHV's loan are similar to products of competitors. The minimum loan sum is 20,000 euros, maximum maturity 30 years, and rate of self-financing at least 15 percent.
The main difference concerns potential payment holidays the maximum length of which news agency BNS reports at 12 months. Unlike other banks, LHV will not require clients to pay a fine for early repayment of home loans.