Bank of Estonia finds buyer for stake in Optiva Bank

The Baltic Times, TALLINN
Apr 27, 2000
By Kairi Kurm

 Sampo Finance, a Finnish insurance company, has made an offer to the Bank of Estonia to buy its shares in Optiva Pank, the third largest bank in Estonia. The offer concerns a 57.9 percent stake which the central bank acquired in October1998 to stabilize the banking sector and prevent a possible systemic crisis.

The central bank has agreed in principle with the terms of the offer to be made public about June 30 after the boards have approved the transaction and Sampo Finance has carried out a due diligence inspection.

Next, Sampo Finance intends to make a follow-up offer to Optiva Pank’s minority shareholders and Uhispank, which has offered to sell its 18.8 percent share in Optiva Pank. Sampo Finance will make a take-over bid to all minority shareholders at the same price as the shares held by Uhispank, which according to some specialists, may be as high as Optiva’s share price on the Tallinn Stock Exchange and better than the price offered to the Bank of Estonia.

The closing price of Optiva’s share on the Tallinn Stock Exchange on April 28 was 7.80 kroons. According to the current price at the exchange, the value of central bank’s stake in Optiva is 186 million kroons ($11 million). The Bank of Estonia purchased the stake for 225 million kroons one and a half years ago.

The Bank of Estonia is also providing a temporary conditional guarantee in the amount of 70 million kroons to support the value of specific loans held by Optiva Pank.

“Losses and gains of both parties are not clear as the terms of the transactions have not been set up,” said Kaja Kell, Bank of Estonia spokesman.

Paavo Pold, senior analyst from Suprema said the Bank of Estonia might lose a minimum of 110 million kroons in the transaction, because it had valued the stake in Optiva Pank to be worth 115 million kroons.

“That is 6.09 kroons per share. We predict the price of the share (for the Bank of Estonia) to be between 5 kroons – 6 kroons,” said Pold. “The Bank of Estonia knows best what the real value of Optiva Pank is. We think the Bank of Estonia will not have to use any of the guarantees that it provides.”

Optiva Pank, which has so far mostly concentrated on corporate client services, holds about 7 percent of the market share. Seven banks operate in Estonia.

Sampo Finance, owned in equal parts by Sampo Insurance Company and Kaleva Mutual Insurance Company, is a market leader on the Estonian insurance market since the purchase of Eesti Kindlustus, a subsidiary of Eesti Hoiupank.

After a recent merger with Finnish Leonia Bank, Sampo group became one of the biggest insurance and banking services providers in Finland.

The central bank announced that they were optimistic about the entrance of a new startegic investor and that Optiva Pank, using its owner’s international know how, would soon strengthen competition in the Estonian banking sector.


Vensel throws in towel, returns to academia

The Baltic Times, TALLINN
Apr 27, 2000
By Kairi Kurm

 Newly-appointed president of the Bank of Estonia, Vello Vensel, has canceled plans to lead the Bank of Estonia, citing the sudden worsening of his health.

Vensel visited a doctor in Sweden and gave explanations to the public some days later. Prime Minister Mart Laar and several other politicians said this delay in explaining the sudden resignation damaged the reputation of Estonia and its central bank. Vensel said on Estonian national TV he realized after his first intense week he was not ready to accept such a responsibility because of a health condition.

Kaja Kell, spokesman for the Bank of Estonia, said the bank could not foresee this problem.

“The law allows questions to people about their health but does not require an independent health assessment,” said Kell.

Bank of Estonia’s current vice president, Peeter Lohmus, took over the duties.


Read the background:

Estonia’s top foreign investor is Kunda Nordic Tsement

The Baltic Times, TALLINN
Apr 20, 2000
By Kairi Kurm

 The Estonian Investment Agency has named cement company Kunda Nordic Tsement in the northern part of Estonia run by German and Swedish investors, the top investor of 1999.

President Lennart Meri and Minister of Economic Affairs Mihkel P�rnoja participated in the traditional Top Foreign Investor 1999 Awards ceremony on April 13 to acknowledge companies that contributed most to the development of the Estonia’s economy.

“We decided to give the prize to a company which is strong in all criteria: the amount of investments, export development, the creation of jobs and product innovation,” said Agu Remmelg, director general at the Estonian Investment Agency. “Eesti Telekom for example, fell out of top place because they neither exported nor created jobs. Kunda Nordic was good in all criteria, but not the strongest in any.”

Kunda’s main competitors for the award with Eesti Telekom were Elcoteq Tallinn, Hansabank, Tartu Brewery and the Tolaram Group.

“Kunda Nordic was established seven years ago and during this time has been able to turn a dusty and dirty Kunda into a profitable and fast-developing plant. They have also built a modern harbor in Kunda, where wood is being exported besides cement. Their investments are very important in developing regions outside the Tallinn area,” Remmelg said.

“Our success lies in the enthusiasm of our personnel,” said Jan Owren, managing director at Kunda Nordic Tsement “They have a great experience in cement manufacturing, and they are extremely enthusiastic in developing the whole society of Kunda and the port of Kunda.”

All of the owners of the company come from abroad, mostly from Sweden and Germany. Estonia privatized its stake in the company last year.

“We have invested about 600 million kroons ($37 million) since 1993 and are planning to pause in investing and start to consolidate,” said Owren.

The company has been working with a profit since 1998. Kunda Nordic Tsement employs 377 people. Its sales in 1999 reached 374 million kroons – about three-fourths from exports. The biggest export markets are Germany, Poland and Finland.

Owren said the main advantages for having a plant in Estonia are the availablity of raw materials, the location near the coast and the favorable costs. Kunda Nordic Tsement uses domestic oil shale as fuel in the production.

Four other companies were handed separate awards in investment, export development, creation of new jobs and innovation.

Eesti Telekom, which made invesments to the amount of 720 million kroons last year, won the award for biggest investment.

The sporting goods company HTM Sport, which got most of its 308 million kroon turnover from exports, won a prize for export development. The company produces 14 percent of the world’s ski boots.

A producer of paper products, Lindegaard Eesti, won the prize for creating the most jobs, adding 42 percent of its 271 jobs last year.

The prize for production innovation went to electronics company JOT Eestiwhich finds its biggest export market in Finland.

Remmelg said1999 was a successful year for Estonia in terms of foreign direct investments. Of 4.5 billion kroons coming into the country, one fourth went to industry, one fourth to transport and communications and one fifth into the banking sector. The biggest sources were, as usual, Finland and Sweden, which combined, invested about 70 percent of the total.

“If we do not take into account the investments made in the banking sector in 1998, then 1999 was a record year,” said Remmelg.


The Estonian economy is on a rise

The Baltic Times, TALLINN
Apr 13, 2000
By Kairi Kurm

The Estonian economic situation can be rated satisfactory and is continually improving but with a much smaller boost than the Estonian Institute of Market Research predicted half a year ago.

“We expected the economy to come out of the crisis much faster,” said Leev Kuum, head scientist at market researchers Eesti Konjunktuuriinstituut.

According to 20 experts who participated in the research, the environment for investments and personal consumption should become more advantageous in six months. The volume of exports and imports should also grow. Because of the rise in economic growth and investments, experts expect the balance of the trade deficit to increase from 17 billion kroons ($1 billion) in 1999 to 21 billion kroons this year. The current account deficit of gross domestic product is expected to be around 8 percent.

The experts expect Estonia’s GDP in the 12 months of 2000 to grow 6 percent over 1999 and reach 82 billion kroons.

EKI specialists believe that the Estonian economy has good prospects to grow, thanks to a good image among foreign investors, advantageous credit ratings in the banking sector, increasing lending resources and more advantageous interest rates. The interest rates are expected to stay on the same level, or decrease a bit, and the inflation is expected to grow by at least 4.6 percent (annual average) in six months. In 1999 the average inflation rate was about 3.3 percent. All in all the cost of products and services has risen by 6.7 times since the introduction of the Estonian kroon in 1992.

The biggest problems facing the Estonian economy now are insufficient competitiveness, the lack of skilled labor and export barriers. Compared to last year, experts regard problems related to budget deficit and unemployment more important.
Families are discontented

Although the Estonian economy is improving, most of the families do not feel the progress in their family budgets. Their opinion on their economic situation is even worse than it was a year ago. They do not expect any improvements in the near future.

According to Marje Josing, director at Eesti Konjunktuuriinstituut, 60 percent of families make ends meet but are not capable of making any savings, while 13 percent have enough money to save and 12 percent are constantly in debt. In Finland as a comparison, 39 percent make ends meet, 47 percent can save, 8 percent save a lot and 2 percent live in debt.

She said that people with smaller income are more likely to consume products and services of the “illegal economy (black market)” the share of which is about 12 percent of the GDP. Research shows that four people out of 10 prefer illegal products and services to more expensive products and services, which include taxes. Josing said that the illegal economy is most common in car service, needlework and in the sale of products with high excise and trademark taxes. She said that excise taxes on vodka, for example, are higher than the price of vodka on the illegal market.


Woman dies after being struck by police car

The Baltic Times, TALLINN
Apr 13, 2000
By Kairi Kurm

 A police squad car hit a 76-year-old woman on a pedestrian crosswalk on the evening of April 8 on Kotka Street in Tallinn. The woman died at the scene 30 minutes later.

According to Kaia Kalliver, spokeswoman for Tallinn Police Prefecture, the two policemen involved were driving an allegedly disorderly suspect to a place of detention. Witnesses give differing accounts of the accident.

“According to the police and witnesses, the police car, an Opel Astra, had lights flashing and siren going,” said Kalliver. Some witnesses said on the other hand, that the police car turned on the flashing lights and the signal right after the accident. A saleswoman from a nearby kiosk told the tabloidOhtuleht that she did not hear the signal and did not notice any special lights before the accident.

According to some witnesses, the police car drove with a great speed at about 100 kilometers an hour although the speed limit on that street is 50 kilometers an hour. The car left about a 60-meter-long skid mark on the road.and dragged the woman almost 50 meters away from the crosswalk.

Police had followed procedures, Kalliver said.

“If the police find it necessary to use special lights and a signal, they have the right to do it. The criminal case will specify, whether it was necessary or not,” said Kalliver. “Staff in police cars use special effects in order to draw attention and people should make way for the police cars in order to avoid dangerous situations. The police should at the same time secure traffic safety.”

She said that the 25 year old policeman driving the police car and his partner were in shock after the accident and took time off without pay.


Central bank candidate to streamline info

The Baltic Times, TALLINN
Apr 06, 2000
Interview by Kairi Kurm

The supervisory council of the Bank of Estonia chose Vello Vensel as the candidate for president of the Bank of Estonia by ballot on March 30. Vensel, 58, is a professor of statistics at the Tallinn Technical University.What is Vensel�s vision for the Bank of Estonia and what is he planning to change? Kairi Kurm interviewed Vensel a day after his victory over outgoing President Vahur Kraft.


Q: How would you describe the activities of the Bank of Estonia? How does the central bank manage its tasks?

A: In terms of formatting the financial and payment policies and coordinating the banking system I have no reproach. The Bank of Estonia has developed fast. Looking ahead in the future, I see a lot of changes to be made.

It all depends on how fast Estonia joins the Euro Zone. If everything goes as planned, Estonia will be ready to join the European Union on Jan. 1, 2003, and two years later join the European Economic and Monetary Union.

After the full introduction of the euro, most of the functions of the central bank related to local money will change, and the organization itself will change.


Q: The very first things you, as the newly elected President of the Bank of Estonia, will change are…

A: First of all, I would check the kind of information made available to the public. The central bank has statistics and study departments where serious work is done with a lot of information at hand.

I will see whether their work is acceptable, and whether it is good enough for entrepreneurs, top management and politicians to take the right managerial decisions.

The organizational side of the bank has to be looked over. How does management work? Do some departments duplicate each other? Is it possible to improve anything? Maybe the management consultants can help. Every person should be working where he feels most wanted and where it gives him most satisfaction. I am not planning to dismiss anyone, but it is important that everybody is working in the right position and doing the right job.


Q: Would the entrepreneurs have to pay for that information?

A: No, I have not thought about that. I mean the same public information, which is available at present, bank bulletins and market reviews, which are for free. There is not enough information at present, and it is not processed enough. The problem also lies in marketing it correctly.


Q: You have said the central bank should intervene as little as possible in the activities of the commercial banks, but at the same time you expect them to hand in monthly economic results instead of quarterly results?

A: Yes. It does not restrict them at all and does not require any additional effort. They do daily statements of accounts anyway. I have heard through the press that analysts are very annoyed with the lack of information.


Q: Are you planning to increase and strengthen supervision over the commercial banks?

A: Supervision should be strengthened rather than increased. First steps have already been taken to establish an integrated supervision system for the whole finance sector � banking, insurance and security.

I will do my best to make it function properly. To my mind this integrated organization will be established by Jan.1, 2002. I think it will be managed by the banking supervision board. By strengthening the supervision, I did not mean setting any additional obligations but improving the present monitoring.


Q: It has been discussed lately whether to use the profits of the central bank in the state budget. The former president, Vahur Kraft, was against it. What is your standpoint?

A: There are certain rules. The law foresees how much money has to be reinvested in the bank. The council can then decide on spending additional money for certain purposes.

The profit in excess should go to the state budget, because the state owns the Bank of Estonia. It has been operating this way all the time, and it is the right way to continue. But I do not feel it is right to ask suddenly for 200 million kroons ($12.3 million) for the state budget, no matter how much profit the bank has earned. According to the press, the central bank ended last year with a loss.


Q: Is the role of the central bank in Estonia different from what it is in other countries?

A: The role of the Bank of Estonia is actually different, thanks to a currency board regime and a fixed exchange rate system which automatically eliminates the possibility to use money in certain directions. The currency board expects signals to come from the market. The intervention of the Bank of Estonia in the economy is relatively small.

Lithuania�s central bank with its currency board is similar to Estonia�s. Latvia�s central bank is not much different either, but both Latvian and Lithuanian central banks face consolidating their banking market.


Q: How much did you deal with banking before running for the managerial position in the Bank of Estonia?

A: I have done a lot of research on the central bank and currency board systems. I have read a lot and compared Estonia to other countries. I have gained that kind of background in theory.


Q: Do you have any interesting ideas that you would like to put into practice, something that you have learned in theory?

A: One of the things I have learned is that central banking is a very conservative sphere. It is known that a currency board works well in small, open economies like Estonia�s, where it acts like a basic anchor to stabilize the environment. We should keep up the same system in joining the Euro Zone.