Why Danske Bank is withdrawing from Lithuania and its consequences

Danske Bank
Reuters / Scanpix

Citizen and business purchasing power growth does not compensate a declining population and this is one of the reasons for the withdrawal of Danske Bank, financial analyst Jekaterina Rojaka told LRT Radio in the show Lietuvos Diena, with the Bank of Lithuania oversight service chief Vytautas Valvonis saying that the bank’s withdrawal does not signal the reduced appeal of the country, lrt.lt writes.

V. Valvonis is convinced that the withdrawal of Danske Bank from Lithuania is not unexpected, will have no negative consequences and does not signal problems in the Lithuanian market.

“The bank made this decision far earlier when it sold a part of its business to a different bank operating in Lithuania. As such, the decision made today is neither unexpected nor inexplicable. It will have no major impact on the continued development of the banking system. It should also not have any significant impact on the competitive environment because Danske Bank handed over a part of its business to another bank and only comprised a few percent in the market.

This is definitely not linked to Lithuania’s economic appeal because we can see that even the Danske Bank operation centre is remaining in Lithuania, new market participants are entering as well. We should really not view this single case as a negative factor when considering the country’s appeal or lack of it,” he assured.

According to V. Valvonas, this step by Danske Bank should not be painful because with the number of banks having been reduced in Lithuania, the bank of Lithuania is actively working to attract new market participants to the country.

“We hope that in the near future, a number of new banks will enter Lithuania, payment and e-money institutions are actively appearing, mutual lending platforms are growing, thus there are certainly many alternatives, especially in the payment sphere,” the Bank of Lithuania rep stated.

However, J. Rojaka does not view the withdrawal of Danske Bank as innocent and harmful to the Lithuanian markets, listing reasons, which could have led to such a decision.

“The first reason of the withdrawal is a small and fairly moderate growing market. The increase in citizen and businesses’ purchasing power is not compensating the declining population. The second reason – high bank concentration and high competition, which does not guarantee profits in the largest and once most appealing segments,” the analyst listed.

The third reason, according to J. Rojaka, is the increasing bank regulation, requirements and oversight for capital. Changing technologies, where the transaction market is overtaken by fintech companies and competition entering other segments also has an influence.

All these conditions lead to either very large players managing to remain in the market or niche participants. The decision is logical, however to say that the Lithuanian markets are not related with the new strategy would be mistaken. On the other hand, similar trends are visible across Europe.

As for new players entering, I would not get my hopes up. The road for banks to enter the market and operate in it is very difficult due to legislative differences in Europe,” J. Rojaka spoke.

Lrt.lt reminds that Danske Bank decided to focus on the Nordic States’ daughter companies in the Baltics. The Bank’s press release states that a reduction in operations will be performed gradually, local clients will be serviced as usual for a time, however services will not be provided for new clients.

Danske Bank already relinquished its private banking services in the Baltic States in 2016, handing it over to the Swedbank group in Lithuania and Latvia.

Currently clients, according to bank representatives, do not need to take any further steps. The bank will inform of service changes ahead of time.

It assures that Danske Bank service centres in Lithuania will not be influenced by the new strategy. Danske Bank IT and global service centre expansion in Lithuania is to proceed as planned. Currently Danske Bank service centres employ around 2300 specialists of various qualifications.

You may like