Published on February 17, 2014
Establishing a branch of the Islamic bank in Estonia Feasibility study Prepared by: Vladimir Maslov Mark Maslov Maslov Consulting LLC February 2014 1
Content 1. Idea and goals 3 2. The problem and its solution 4 3. Potential customers 5 4. Preconditions 6 5. Risks. SWOT analysis 13 6. Estonian and Baltic States’ potential 16 7. Next steps 18 2
1. Idea and goals The aim is to establish a branch of the Islamic bank in the Baltic States to facilitate the implementation of creative projects in various sectors of the economy such as industry, agriculture, energy, information and communication technologies. 3
2. The problem and its solution Competitive advantage of Islamic banking in the Baltics: a new, unique and just form of financing in the region. 4
3. Potential customers At the beginning stage, customers of the branch will be companies with a turnover of at least 2 million € and have been running in the market for at least three years. The Baltics is one of the fastest growing region in the European Union. There are suitable promising companies with viable plans and development potential. The approximate quantity of customers can be 2-2.5% of all running companies. The priorities are: Production companies Agricultural enterprises IT developers Transportation and logistics Statistics on companies in 2013 Country Number of companies Estonia 170000 Latvia 265000 Lithuania 181000 5
4. Preconditions. What for? The study of the mechanical engineering sector in Estonia conducted by the University of Tartu in 2011 showed the demand on additional financial instruments. The survey involved 124 production enterprises of which 60% were in favor of the need for new financial instruments. 6
4. Preconditions. Why Estonia? • EU member • Developed infrastructure (100% fiber optic broadband by 2015, more than 1,150 public wireless access points to the Internet) • Operating electronic state (voting, tax, health care, etc. Estonian companies are developing similar solutions for the State of Qatar) • Competitive costs and tax system (1/3 of staff costs compared to Finland or Sweden, simple tax system, reinvested profits are not taxed, online registration of a new company in 20 minutes!) • Low risk (2nd place along with Denmark regarding the stability index in the EU, the lowest public debt in the EU, low level of corruption) • Skilled and educated workforce (55% speaks one or more foreign languages, core competence in electronics, transport and logistics, food and chemical industries, engineering and metalworking, information technology) • Advantageous geographical location (close integration with Scandinavia, proximity to Russia , good connections to Central Europe) 7
4. Preconditions. Tax system In Estonia reinvested profits are not taxed! 8
4. Preconditions. Scandinavian manufacturer`s opinion about business climate in Estonia Bo Henriksson, ABB Country Manager in Estonia: The government doesn't meddle. "The climate to operate a business in Estonia is very easy," says Henriksson. "There is very little bureaucracy." An ample supply of specialists. Even when the labour market has been at its tightest, ABB has been able to recruit and train the specialists it needs. When ABB could not find the specialists it needed to produce turbines for wind generators, it created programs and trained them itself. A good work ethic. At the level of the assembly line workers, the local labour is consistently praised as honest and hardworking. Geography. Since as much as 100 percent of some of ABB Estonia's production is slated for other ABB factories, the geographic proximity to Scandinavia is critical. This is true of wind turbine production at the Jüri factory: although thirty percent of the world's wind parks use its products, every generator must journey to another ABB facility before it meets its final user. Room to grow. ABB is engaged in lobbying work with ABB Corporate to expand production in Estonia. There are case studies which illustrate success in moving entire operations to Estonia, such as in 2006 when ABB moved the compact substation manufacturing facility from Denmark. "It's profitable in Estonia," says Henriksson. "For a variety of reasons, it wasn't ever profitable in Denmark." 9
4. Preconditions. Financial sector overview • Close relationship with the Scandinavian banking system including through ownership • 7 registered banks. All the rest are acting as branches. • Relatively small share of the financial sector in the economy as a whole • The private sector credit load to GDP ratio is relatively low. • Estonia has a small public debt. • The financial sector is stable compared to other EU countries • Highly developed system of Internet banking 10
4. Preconditions. Market shares of Estonian banks Bank Balance volume 1000 EUR % BIG 1,52% 346 544 SAMPO 9,37% 1 641 204 DnBNORD 1,29% 315 746 Krediidipank 2,39% 396 301 LHV 0,79% 282 689 NORDEA 13,54% 3 167 452 CITADELE 0,75% 264 329 SEB 19,16% 3 614 192 SWEDBANK 46,50% 7 844 040 UniCredit 1,65% 261 166 ÄRIPANK 0,73% 165 010 POHJOLA 0,02% 142 325 не входящие в союз банков 2,29% 297 763 100,00% 18 738 761 Всего 11
List of institutional investors in Estonia ACCOUNT OPERATORS • Avaron Asset Management AS http://www.avaroncapital.com • Hansa Investeerimisfondid AS http://www.swedbank.ee • Kawe Kapital AS http://www.kawe.ee • LHV Varahaldus AS http://www.lhv.ee • SEB Ühispanga Fondid AS http://www.seb.ee/fondid • Trigon Alternative Funds AS http://www.trigon.ee/en • • Trigon Funds AS http://www.trigon.ee ERGO Varahalduse AS http://www.ergofondid.ee AB http://www.unitedpartners.ee/ • INVESTMENT COMPANIES • • KIT Finance Europe http://www.kfe.ee • Evli Securities AS • http://www.evli.com/pub/web/EE /ee/index • Cresco Väärtpaberite AS http://www.cresco.ee • • Lõhmus, Haavel & Viisemann AS http://www.lhv.ee • Trigon Securities http://www.trigoncapital.com • East Capital Asset Management AB http://www.eastcapital.com • Privanet Eesti • T. Rowe Price Global Investment Services • Danske Capital AS http://www.danskepank.ee • IPS “Hansa Fondi” AS • EVLI Fund Management Company Ltd INVESTMENT BANKS • East Capital Asset Management • United Partners Group • BaltCap http://www.baltcap.com Trigon Capital http://www.trigon.ee REAL ESTATE INVESTORS Evli Securities AS http://www.evli.com/pub/web/EE • Eften Capital http://www.eften.ee /ee/index Nordic Financial Services http://www.nordicfinancial.com Cresco AS http://www.cresco.ee VENTURE CAPITAL • AS Eastern Europe Real Estate Investment Trust http://www.eereif.com/ • Metro Capital Management AS http://www.metrocapital.eu • Redgate Capital http://www.redgatecapital.eu/ • Trigon Property Advisors http://www.trigoncapital.com • Ambient Sound Investments OÜ http://www.asi.ee • MTVP AS http://www.martinsontrigon.com/ • BaltCap http://www.baltcap.com MEZZANINE FINANCING • Redgate Capital http://www.redgatecapital.eu/ • Balti-Ameerika Ettevõtlusfond • Hanseatic Capital http://www.hanseaticcapital.net/ • Baltic Mezzanine http://www.balticmezzanine.ee PRIVATE EQUITY • Alta Capital Partners http://www.altacapital.ee 12
5. Risks. Religious risk is avoidable The leaders of the Christian churches recognize the morality of Islamic banking compared to traditional banking system. The Vatican has put forward the idea that "the principles of Islamic finance may represent a possible cure for ailing markets.“* *Lorenzo Totaro (2009-03-04). "Vatican Says Islamic Finance May Help Western Banks in Crisis". Bloomberg L.P. Retrieved 2009-04-13. 13
5. Risks. SWOT-analysis 14
Loans and deposits correlation of Estonian companies to 30 September 2013 (thous. €) 6000000 5000000 4000000 3000000 2000000 1000000 0 Loans Deposits BIG DANSKE DNB 288073,92 1057140,029 493606,389 238231 1475535 221564 EKRE 131349,3 HANDELSB 112497,159 LHV 163545,48 VERSO 23647,16 NORDEA 2269959,96 CITADELE 47665,51 SCANIA 39459,61 206542 76375 272370 88406 844296 85443 0 SEB SWED 3162635,29 5371607,91 2420111 5059805 ÄRIP 27568,31 POHJOLA 94073,82 FOLKIA 2309 135699 2981 0 15
6. Estonian potential If we consider that by the end of the first year the new branch will capture 0.5% of the market and further annual growth will be at 12.5%, the potential of Estonia can be estimated within a needed investment of € 31 million and € 2.3 million income. 16
6. Potential of all Baltic states First year result in Estonia, Latvia and Lithuania (thous. €) 70000 66426 60000 49819 50000 40000 33213 30000 20000 10000 4982 3736 2491 0 Estonia Latvia Investment Lithuania Income Total investment - 149.5 million € Income – 11.2 million € 17
7. Next steps Start!!! Achievement of objectives Registration of the branch Discussion and approval of the terms and objectives of the branch 18
Contact: Mark Maslov GSM: +372 5129624 email@example.com Linkedin profile: here 19
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