Bank North in £20m bailout by UK arm of Estonian financial group LHV

The UK arm of Estonia’s largest financial group has agreed to buy the small business loan book from startup challenger Bank North for around £20 million.

The deal with LHV comes a week after Bank North was forced into a “solvent liquidation” after failing to raise enough funds to obtain a full banking license, which would have allowed it to take deposits from private savers.

The demise of Manchester-based Bank North – revealed in the Daily Mail last week – was a blow to the government’s ‘levelling’ agenda and plans to cut competition in the credit market for small and medium-sized enterprises (SMEs). stimulate.

It also raised concerns about the financial strength of other challenger banks in their battle against the cost of living crisis and a near meltdown in financial markets.

But now LZV Bank is saving North and securing about twenty jobs, a third of the total.

“For a bank the size of LHV, in the UK it’s not about the demand for loans, it’s about having enough capital to meet the demand,” said Madis Toomsalu, LHV chief executive.

“Bank North’s business has proven that demand for SME loans in the UK remains strong and that an efficient and fast decision-making process makes it possible for a new entrant to the market to grow a lending business.”

Founded in 2018, Bank North specialized in lending between £500,000 and £5 million. It started lending to a year ago after obtaining a limited banking license.

Ron Emerson, chairman of Bank North, which used to run the state-backed British Business Bank, blamed “an emerging storm of economic uncertainty over the past six months” for its failure. Latest accounts show it lost £1.9m in the nine months to March 2021.

LHV, which will write off the value of its existing 9 percent stake in Bank North, is applying for its own banking license in the UK. The British company provides payment services to 200 international financial service providers.

Since 2013, the Bank of England has approved 54 new licenses for banks, including Monzo, Starling and Atom.

Just under half has been allocated to British subsidiaries of foreign banks.

A recent EY report shows that revenue and profitability for challenger and specialty banks increased last year, while bad debt provisions decreased.

It said banks were well capitalized, meaning they had enough reserves to withstand a recession and continue to grow.

But the EY report added: “The geopolitical and economic picture could pose major challenges in the future.”