Analytics, Baltic, Banks, Cooperation, Estonia, Financial Services

"Because of its size the bank would be systemically important in Estonia. Risks for our banking will begin to depend more on Latvia and Lithuania where the new bank would have a big portion of its business. If the establishment of the new bank is approved, we at the Bank of Estonia will be definitely paying more attention to the markets of Latvia and Lithuania when analyzing risks to financial stability and will take this into consideration when imposing requirements as regards capital buffers," the central bank's Vice President Madis Muller said.

Muller said the creation of the second biggest bank in the Baltic region would be the biggest news of the Estonian financial market of recent years, which could mean greater competition in retail banking. The new bank would increase the value of assets of the Estonian banking sector by approximately 40%.

"Danske recently withdrew from the Estonian retail banking market, which wasn't good for competition. Also, DNB was not active in retail banking so far. I hope that the creation of a new large universal bank focusing on the Baltic market will bring with it stronger competition in the market for banking services meant for private individuals in particular. Competition is a force that takes us forward, therefore this is good news," Muller added.

Nordea and DNB announced on Thursday they have entered into an agreement to combine their operations in Estonia, Latvia and Lithuania to create a main bank in the Baltics where both will have equal voting rights but different ownership levels. Nordea's and DNB's Baltic operations have 1,300 and 1,800 employees and eight billion euros and five billion euros in assets, respectively.

Nordea and DNB said in a press release their operations in the Baltics are a great match, with complementary lines of business. Nordea has built a strong position within the large corporate segment whereas DNB is strong in the SME segment. Together, the banks will also have an even larger and more competitive retail business.

The transaction is conditional upon regulatory approvals and conditions, and is expected to close around the second quarter of 2017. The banks will operate independently until all necessary approvals have been received.