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SEB Pank replies to the clients’ questions regarding macroeconomic trends

1. Macro

Recipients: Management, Economists

What are the possible EU/US sanctions on Russia?

The probabilities of sanctions are as follows: banning entry of Russian officials, freezing accounts of Russian officials in EU / US countries, banning exports of certain goods (e.g. arms) to Russia, banning imports from Russia and banning exports to Russia.

What would be the impact of the possible EU/US sanctions on Russia to the Baltic countries’ economies?

Russia-Ukraine conflict already hurts economies of Russia and Ukraine. Russian economy is in quite difficult condition now as foreign investors turn away and capital flees from the country, both equity market and rouble drop and most of economic sectors stall. In all three Baltic States, slowdown of Russia’s economy will have a negative effect on exports and transport sector. In 2013, Russia accounted for 20% of Lithuanian, 18% of Latvian and 11% of Estonian exports. As growth in Baltic countries will decelerate due to slower growth in Russia, trade among Baltic States will also be affected to a certain extent.

What is the worst-case scenario?

In the worst case scenario, which is highly unlikely according to SEB analysts, exports and imports to/from Russia would be stopped entirely. This would have notable negative effect on Baltic economies. However, many companies which have business with Russia usually also have their “plan B” for survival. E.g. ban of Lithuanian dairy exports to Russia in 2013/2014 did not have notable effect on the overall economy despite the fact that milk and dairy products is the most important Lithuanian-origin good sold in Russia. After 1998 Russian crisis, Lithuanian exporters also were able to redirect quickly their sales to Western markets.

The weakest spot for all three Baltic countries is their energy dependence on Russia, as 100% of natural gas consumed in all three countries is bought from Gazprom. However, Baltic countries put their effort to reduce energy dependence. Lithuania should open LNG terminal at the end of 2014, Estonia plans to build joint LNG terminal with Finland in the nearest years and Latvia also considers having its own LNG terminal which would allow imports of natural gas from other countries than Russia. Power links to Poland and Nordic countries are also under construction.

Latvian banking sector is somewhat more vulnerable than in Lithuania and Estonia to the consequences of the conflict as almost half of deposits at the banks are deposits of non-residents.

Would the import ban of Russian goods severely affect Lithuania’s/Latvia‘s/Estonia‘s economy if the most hardest sanctions would be put on Russia at EU level?

Lithuania: Import ban would severely affect Lithuania’s energy system. 90% of Lithuania’s imports from Russia are oil and gas. Import ban would devastate the whole energy system: power import and production, heat production, gas import.

Latvia: Inevitably, Baltic economies would suffer the most if such strict sanctions against Russia are imposed, therefore the international society will have to seek ways how to mitigate the negative impact on Latvian economy. However, 70% of Latvia’s external trade is done with European countries and Latvian businesses have gone through Russian crisis in 1998, which has given experience how to adapt to such changes and refocus on other markets.

Estonia: Import ban would affect the most the oil supply and would disrupt somewhat the raw material supply for wood industry. Less affected would be chemical and metals industry. The most would be affected the transit trade related transportation companies. The share of Russian imports in total imports is 6% and much of it is transit trade.

What may the impact of a loss of the Russian export market be on Lithuania/Latvia/Estonia?

For Lithuania: The share of Lithuania’s export to Russia is 19.8 per cent of its total export; the share of export of Lithuanian origin products to Russia is a mere 4.8 per cent. In terms of the share of export of Lithuanian origin goods, Russia ranks only number eight and, calculating in per cent, it is two times behind Germany, Latvia and Estonia. The major part of Lithuania’s export is re-export. In other words, problems would arise to foreign companies whose goods are transported to Russia via the territory of Lithuania as well as to the transport sector.

For Latvia: Russia is Latvia’s 3rd largest trade partner and in some sectors like transit and logistics cooperation with Russia is significant. However, 70% of Latvia’s external trade is done with European countries and Latvian businesses have gone through Russian crisis in 1998, which has given experience how to adapt to such changes and refocus on other markets.

For Estonia: The share of Russia in the total export is 11%, however, about 40% of it is transit trade. Thus, again, the most affected would be transportation sector, which has significant impact on economic growth, accounting for 7 per cent in total GDP. Russian related transportation services account for 15 per cent in total services export. For Estonian manufacturing companies, the loss of Russian market would affect the most the food and chemical industry and somewhat also machinery industry.
 

2. Banking business and relations with clients

Recipients: Contact Center, Client Executives

SEB holding statement:

For the moment we don´t see any effects on customers. Naturally, we follow the sanction decisions made by the EU or other international bodies. To ascertain that SEB's customers and counterparties are not included on the sanction lists published by the EU, SEB has introduced group-wide controls. If it becomes necessary to freeze assets, SEB will notify the Authorities.

Will SEB continue to issue loans and provide other financial services when dealing with clients who run business in Russia and Ukraine?

Such decisions are made on case-by-case basis, taking into account all the risks. We advise our clients who have businesses in Russia or Ukraine to consider the increasing risks and seek to secure themselves against risks of deteriorating economic and political situation in these countries.

Can instability in Ukraine and deteriorating economic situation in Russia have a negative impact on SEB or cause its insolvency?

SEB’s home markets are Scandinavia and the Baltic States, and SEB does not rely on Russian or Ukrainian markets for financial resources or clients. Therefore situation in Ukraine and Russia has no direct impact on operations of SEB in Scandinavia and the Baltic States. SEB will continue to maintain high levels of capital adequacy and liquidity as well as ensure safety of our clients’ assets.

What will happen to my money (clients‘ money at SEB banks) if Russia enters Estonia/Latvia/Lithuania and takes control over Swedish banks?

We do not consider any violations of Estonia’s/Lithuania’s/Latvia’s sovereignty as a viable scenario. SEB operates as usual and will continue to operate in Baltics according to its long-term strategy.
It is important to bear in mind that Estonia/Latvia/Lithuania/ is a member of EU and NATO that ensures inviolable guarantees of its sovereignty.

I have a bank account in SEB Estonia/Lithuania/Latvia. If Estonia/Lithuania/Latvia faces occupation by Russia, please describe how SEB will protect my money and what kind of possibilities do I have to use my money after occupation? Please provide detailed instructions.

We do not consider any violations of Estonia’s/Lithuania’s/Latvia’s sovereignty as a viable scenario. SEB operates as usual and will continue to operate in Baltics according to its long-term strategy. This is a very hypothetic scenario. It is important to bear in mind that Estonia/Latvia/Lithuania/ is a member of EU and NATO.

Should clients be concerned for safety of their assets and consider moving them to SEB in Sweden? Should I open an account in SEB in Sweden and move my money there for more safety?

SEB considers Baltic States and Sweden as its home market and strives for the highest level of client asset security. SEB is following developments in Ukraine and Russia closely, nevertheless, in our assessment; currently we have no reason to question security of our clients’ assets in Baltics. Taking the current situation into account, we do not recommend opening bank accounts in other countries unless it is a necessary part of your business or it is related to personal changes in one’s private life.

Despite your recommendation I still want to open and account in SEB in Sweden and move my money there. What would be SEB’s solution for me?

For Private Banking customer: If, anyway, it is necessary for you to open an account in a bank operating outside Lithuania/Latvia/Estonia due to the above indicated reasons, SEB offers a standard service to its private banking customers: to open an account at SEB’s subdivision in Luxembourg or Sweden, to which you may transfer your money.

For corporate customer: If, anyway, it is necessary for your business to open an account in a bank operating outside Lithuania/Latvia/Estonia due to the above indicated reasons, SEB offers a standard service to its corporate banking customers: to open an account at SEB’s subdivision in Sweden.

For private individual (retail):
SEB does not offer such a service for private individuals, unless it’s a SEB’s private banking or corporate customer. Private customers are advised to contact directly SEB Non Resident Department in Sweden for further procedures.

Why Estonians/Lithuanians/Latvians cannot open an account in Sweden?

SEB does not offer such a service for private individuals, unless it’s a SEB’s private banking or corporate customer. Private customers are advised to contact directly SEB Non Resident Department in Sweden for further procedures.
 

Questions regarding discontinuing cooperation with several banks

Does SEB cooperate with any of the persons or legal entities mentioned in US and EU sanctions list?

According to legal requirements, we are not at liberty to disclose any information about our clients. Nevertheless, we can assure you that we are following the sanctions which have been imposed and will apply them accordingly in case of necessity.

What is SEB policy towards Russian banks or any other banks, which are owned by persons to whom EU sanctions have been applied?

Naturally, we follow the sanction decisions made by the EU or other international bodies.

Has SEB put any limits in cooperation with banks correspondents in Russia?

Due to increasing risks SEB is carefully monitoring situation in Russia running the business and keeping the limits which are acceptable in current situation.


3. Banking business and relations with clients

Recipients: Management, Communication Unit

Do you see any change in clients’ behavior due to Russia-Ukraine conflict and sanctions towards Russia?

For the moment we don´t see any effects on our customers no signs of changes in customers’ behavior. However, taking into account worsening situation in Russian economic situation and risks due to the latest geopolitical development, we advise our clients / companies who run business in Russia and Ukraine to take into account the increasing risks and we are guiding them to use most secure tools of running the business with partners in Russia and Ukraine.

Do SEB clients experience negative consequences caused by US and EU sanctions against Russia?

SEB is following developments in Ukraine and Russia closely and currently we have not seen clear negative tendencies in our client business operations. However, we encourage our clients to consult with the bank if they anticipate any difficulties so that both sides can agree on best solutions.

Taking into account worsening situation in Russian economic situation and risks due to latest geopolitical developments, we advise our clients who have businesses in Russia or Ukraine to consider the increasing risks and seek to secure themselves against risks of deteriorating economic and political situation in these countries.

Has SEB seen any unusual activities or increased amounts of money flow originating from Russia or Ukraine?

Since SEB’s home markets are Scandinavia and Baltic states, our clients come mainly from these countries.  We are using most efficient anti-money laundering procedures to screen our transactions and eliminate any opportunities for unclear operations. We process only those payments where we are certain about the identity of both the payer and recipient as well as legal origin of funds.


Questions regarding discontinuing cooperation with several banks

Did SEB decide to discontinue its cooperation with several banks due to US and EU sanctions?

Main reason for this decision is that we have re-assessed the risks we undertake when engaging in cooperation with some of our partners. In our opinion, in some cases the risks, including reputation risks, have become unacceptable for us, therefore we have decided to limit or discontinue our cooperation. These have been separate, case-by-case decisions.

What risks are you talking about?

Due to instability in Ukraine and Russia there is a clear risk of money outflow from these countries. SEB does not want to be a part of this since our strategy is aimed in different direction – we are a home bank for Baltic and Scandinavian clients. Such transactions always carry high reputation risks. SEB has invested a lot of time and other resources in becoming one of most trusted banks in Northern Europe, and such transactions are not acceptable for us.

Why is SEB limiting cooperation with several small banks in Latvia?

In the light of recent developments in Ukraine and Russia SEB has re-assessed its risk and compliance policies. In some cases, the level of risks and costs of compliance have increased, therefore SEB has decided to limit its cooperation with some partners to protect our clients and ourselves from unnecessary risks.

What does your decision to discontinue cooperation with several banks mean for them and your clients?

We have closed some of the Vostro accounts which we are holding on behalf of other banks. As a result, those banks will not be able to process their transactions through SEB. These are purely inter-bank relations which will have no impact on daily services for our clients. Our clients will still be able to send and receive payments from all banks in Latvia and elsewhere.

With which banks has SEB ceased to cooperate in Latvia?

These are several banks working in Latvian market whose ownership structure or business orientation has exposed them to higher risk levels in the light of recent developments in Ukraine and Russia.

Has SEB ceased its cooperation with SMP bank?

According to legal requirements, we are not at liberty to disclose any information about our clients. Nevertheless, we can assure you that we are following the sanctions which have been imposed and will apply them accordingly in case of necessity.

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