Local Banks Increasingly Becoming Satellites

Raul Malmstein Photo: Postimees/Scanpix
6/17/2011 9:55 AM
Category: Economy

Head of the Financial Supervision Authority Raul Malmstein says that subsidiaries of foreign banks in Estonia are moving toward a model where decisions are increasingly made in the main office overseas.

Speaking in Parliament on June 16, Malmstein said that the final outcome of the process could be the disappearance of local executive decision-making.

"Banks are aiming to create a structure that is as horizontal as possible, where all of the most important management decisions are made in headquarters and the role of the local management is decreasing," he added.

Malmstein said the main obstacle is the Estonian tax code, but changing it could give additional momentum to the trend.

"Another source of momentum could be strategic changes at the level of the parent banks, such as mergers, as a result the existing business and organizational model is reviewed," he said.

Local executive offices could also disappear if a banking group were forced to sell part of its operations off.

The share of Estonian-owned banks on the market is currently marginal, said Malmstein. "The banks' potential for growth is restricted by poorer access to resources and more costly risk management," he said.

"There is a deepening trend where major banks are increasingly becoming local structural units of bank groups at the same time that small banks become international through offering cross-border services or founding branches," said Malmstein.


Kristopher Rikken

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