Financial news

LHV Bank, a provider of banking services and SME lending solutions, has been authorised as a credit institution by the Prudential Regulation Authority (PRA). This has enabled it to become the first institution to receive a banking licence without restrictions in 2023.

This milestone achievement allows LHV Bank to accept customer deposits and transition from operating under the temporary permissions regime as a branch of Estonian retail bank AS LHV Pank (LHV Pank) to being a fully authorised and regulated bank by both the PRA and the Financial Conduct Authority (FCA).

The decision to pursue a UK banking licence was made in 2021. LHV submitted its application in March 2022. Following a close collaboration with the PRA and the FCA, the bank has secured the licence in just over a year. This demonstrates its commitment to regulatory compliance and high standards.

Madis Toomsalu, chairman of LHV Bank, stated: “Receiving the licence without restrictions in just over a year since submitting our application validates the exceptional work of our team and the professional operation we’ve built. We expect LHV Bank to achieve profitability by the end of our first year of operations. Our ability to generate additional capital internally positions us strongly for further growth in the dynamic UK banking market.”

Erki Kilu, the CEO of LHV Bank, added: “In addition to our existing banking services and SME lending activities, we plan to start accepting retail deposits later this year. We want to expand our banking solutions offering to e-commerce businesses. All the while maintaining the same level of convenience, reliability, and security that our existing clients have come to expect.”

Connecting traditional banking and new-generation financial services

LHV Bank connects the traditional banking sector with financial services, delivering cloud-native payments and banking infrastructure. Operating in the UK since 2018, LHV is a member of all major UK and EU payment schemes. As such, its offering includes real-time multi-currency payments, current and savings accounts, acquiring, indirect scheme access, open banking, and FX solutions. These are used by over 200 fintechs like Airwallex, Currencycloud, Truelayer, and Wise.

The bank has a team of 130 employees and offices in London, Leeds, Manchester and Tallinn. This enables its portfolio companies to serve over 10 million end-customers. Through its offering, its client base has access to a pool of 500 million potential clients across the UK and Europe. Last year, the bank processed over 25 million payments valued at over £90billion.

Commitment to reliability, security, and financial performance

With an emphasis on reliability and security, LHV Bank employs prudent risk and liquidity management practices. LHV’s service offerings and customer base have helped to de-risk its revenue streams. This has contributed to the consistent profitability of the Banking Services business line. Last year, it generated £11.5million profit for LHV Pank.

As a result of the banking licence, the company is currently undergoing the Business Transfer process. This will move all operations to the new bank. After the transfer, the UK branch of LHV Pank will be deregistered. LHV Bank will continue to operate as a separate entity. The underlying strong financial performance of the business line means that LHV Bank’s financial plan projects profitability by the end of its first year of operations.

AS LHV Group (LHV Group), the parent company of LHV Bank and LHV Pank, decided to pursue a UK banking licence to better highlight the financial performance and value proposition of its banking services business line to investors. LHV Group is an Estonian financial group with over £10billion in financial assets, operating in the banking, asset management, and insurance sectors. It serves nearly 400,000 direct customers and employs over 900 professionals.

SME lending offerings

Last year, LHV Bank acquired Bank North’s SME lending business line and received regulatory clearance from the FCA to start issuing SME loans. SME lending has been a key strength of LHV Group. It has delivered 15 years of consecutive growth in this space. LHV Bank offers commercial real estate investment loans and trading loans starting from £0.5million to SMEs in the UK. Loan brokers serve as the primary sales channel for SME loans.

LHV Bank’s strengths lie in its faster lending process, loan managers’ long-term experience, and understanding of local entrepreneurs’ needs. Leveraging its expertise, strong balance sheet and the proven demand for SME loans, LHV Bank plans to establish a robust lending business quickly, with operations in Manchester and London.

Growth plans

With its banking licence, LHV Bank plans to expand its offering to a broader audience. This includes accepting retail deposits –  available later this year. Additionally, LHV Bank is introducing banking services to e-commerce businesses. Lastly, it is fully capitalised, and customer deposits are protected under the FSCS up to a limit of £85,000.