LHV UK (the ‘Company’) announces that it has agreed on commercial terms to acquire Bank North’s Small Medium Enterprise (‘SME’) lending business. This transaction enables the Company to accelerate its strategy to expand to servicing SMEs. Powered by 14 years of consecutive growth, lending to SMEs has been one of the core business areas for LHV Group (the ‘Group’), LHV UK’s parent company and an investor in Bank North.

Bank North was Authorised with Restrictions, and it entered the mobilisation period in Q3 2021. The mobilisation period usually lasts up to 12 months and enables new banks to complete the build-out of their bank. One of the requirements to exit the mobilisation period is fully capitalising the bank. Bank North was unable to raise the required capital during the period due to the falling activity in the capital markets. As a result, on 30 September 2022, the Board of Bank North triggered the Solvent Wind Down process.

Transaction

LHV UK has made an offer to acquire the entire SME lending business of Manchester-based regional lender Bank North. LHV UK will acquire Bank North’s entire £17.9m loan book and technology systems for managing the loans. The transaction will also see 20 employees transfer to LHV UK and cooperation agreements with commercial brokers.

The Company will not need any third-party financing for the transaction. Once the business and assets transfer is complete, LHV UK will continue to operate the same business model. The transaction is scheduled to complete later this month, and the proceeds will be used by Bank North to settle creditors as part of its solvent wind-down process.

Regional development

The SME business will remain regional and driven by cooperation with local commercial brokers. Manchester will become LHV UK’s third hub in the UK. The Company has placed high importance on the regional development of the UK’s fintech sector; in addition to its London headquarters, LHV UK opened its second hub in Leeds for its development and engineering teams earlier this year. Another hub will further expand the talent pool to recruit new staff and allows LHV UK to continue to grow its business presence in the UK, creating more opportunities for the Company’s employees.

Technology

Bank North has built technology which enables the bank to streamline the lending process and approve loans to local businesses as much as ten times faster than the competitors. LHV UK will enhance the existing technology and plans to integrate it with its state-of-the-art modular and cloud-based core banking platform.

Future growth

The substantial UK SME lending market is currently underserved. Bank North has built a professional origination, underwriting and valuation team in Manchester, providing a solid foundation for growing the loan book. Through the Group, LHV UK has access to international markets to organise wholesale funding and capitalisation of the Company. To start providing new SME loans, LHV UK must register as an Annex 1 financial institution.

LHV UK’s growth strategy in the UK is underpinned by three business lines: banking services for financial intermediaries, SME lending and banking services for e-merchants. LHV UK is currently focused on obtaining a banking licence.

Erki Kilu, CEO of LHV UK, said: “The demand for SME lending is well proven, and this acquisition enables LHV UK to accelerate our plans to expand to servicing SME companies. By utilising the experience of LHV UK’s Executive Management in the SME lending space and our access to funding and capital, which is essential when running a loan business, we can quickly build on the solid foundation laid by Bank North’s team.

By combining the skills and experience of the two companies, we increase LHV UK’s technical capacity, create value and will be in a position to better deliver to the UK SME market. The SME lending business will remain regional through our offices in London and Manchester, where it’ll continue to benefit from local expertise and established relationships with the brokers, who’ve already delivered a proven substantial loan pipeline to Bank North.”

Ron Emerson CBE, Chair of Bank North, said: “On behalf of the Board, I would like to express our appreciation for the support that we have received from the LHV Group. As an investor, they have conducted themselves impeccably and have demonstrated real empathy for SMEs and a genuine understanding of the Bank North lending proposition and vision. Following a competitive and independently managed process, we are pleased that we were able to agree on this transaction with LHV UK, which not only preserves 20 jobs and the Bank North legacy but also ensures that SMEs will get much-needed finance from a progressive and well-funded provider.”