Estonians have a saying – ”good old Swedish times” – referring to the time when Sweden ruled Estonia in the 17th century. This era saw the founding of Tartu University – Estonia's largest – as well as the modernisation of the country's courts and the granting of certain rights to serfs and peasants.
It all come to an end, however, with the Great Northern War, which brought Estonia under Russian rule.
Even so, those ”good old Swedish times” preserved their place in the national memory and were fondly remembered by Estonians even under the Soviet occupation.
Over the past decade, Nordic and Swedish banks in particular have come to dominate the Estonian banking market. Swedbank SWED A +0,65% Dagens utveckling acquired Hansapank, the Baltics largest bank, while SEB SEB A +0,46% Dagens utveckling , snapped up Ühispank. Nordea NDA SE +0,68% Dagens utveckling and Danske Bank DANSKE 0% Dagens utveckling have also made their presence felt, although markets shares are slightly smaller.
This can be summed up as the Swedish era of banking in the Baltics. It has reduced once prominent and outspoken local bank executives to obedient mid-level bosses, as corporate strategies of Estonian banks and pension funds are nowadays set in Stockholm.
This became evident not least during the financial crisis in 2009, when globalisation-loving Estonians quickly learned that capital, too, has national roots, and that Swedish banks are – first and foremost – Swedish banks.
All in all, however, the financial crisis turned out to be little more than a bump in the road. Before long business resumed, and wealthy Russians who wished to transfer their riches to the West were extensively serviced by the Scandinavian banks operating in the Baltics. Until 2014 at least, when the war in Crimea erupted.
Russia's annexation of the Ukrainian peninsula was met with Western sanctions. , and offering banking services to wealthy Russians quickly became illegal. The pieces began to collapse one by one. in 2018 the Danske Bank money laundering scandal was brought to light. The Danes proceeded by smugly pointing their finger at local mid- and low-level bankers. Estonian regulators have countered by showing Danske Bank the door.
Now, Swedbank is facing money laundering suspicions of its own. Meanwhile Nordea, which has been trying to exit the Baltic market for several years, has finally managed to sell its regional operations to Blackstone. Or so it seems. The truth is the American private equity giant may yet pull out of the deal, should the Baltics reputation become even more tarnished.
The fact is Swedish and Scandinavian banks have become noticeably passive in the Baltic markets in recent years. They no longer fight for market share or clients, and foreign investors – now regarded as potential money launderers – receive rather harsh treatment. Loan rates are nearing the levels of those offered during the financial crisis, while mortgage rates are several times higher than in Sweden.
This is partly the result of market concentration. Essentially, Swedish banks are capitalising on their market share. The decision of Nordea to hand over its loan portfolio to SEB and Swedbank on very generous terms, has strengthened the latter even more.
Consequently, both SEB and Swedbank are likely to turn large profits this year. Last year, Swedbank’s Estonian profits grew by 20 percent, to over 200 million euros. This year, that figure may reach 400 million or more, exceeding 1.5% of Estonia’s GDP. Swedbank may even attempt to paper over some of those profits so as not to upset Estonian citizens and politicians. Windfall profits in light of recent allegations and revelations simply does not look very good.
All that said, what would happen if Swedbank actually decided to pull out of the Estonian market? The hard truth is that the bank is an integral part of the local financial infrastructure, and would be very difficult to replace. Over half of Estonia's internal money transfers passes through Swedbank, and the bank also boasts the country's largest loan portfolio. Local banks are not big enough to fill that void and few if any major European banks are showing much interest in taking Swedbanks place.
Simly put, the money laundering dust is polluting the air over the Baltic countries. Correspondent banks offering US dollars are pulling out of contracts. No one knows what the future holds.
As Estonians, this means we have little choice but to care for Swedbank and make sure the Swedish era of banking in Estonia continues. The most realistic alternative – Russian banks moving in to fill the void – would be far worse.
Meelis Mandel, executive editor of Estonian financial daily Aripäev