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“Pan-Baltic Capital Market” taking shape

By Axel  Reiserer

  • EC Vice President Dombrovskis opens conference at EBRD
  • Countries confirm commitment to implementation of capital markets union
  • EBRD and EU reaffirm their support

The Baltic states – Estonia, Latvia and Lithuania – are progressing with their effort to create a pan-Baltic capital market as the next step in raising their attractiveness to investors.

A “Pan-Baltic Capital Market” conference at the EBRD in London today will reaffirm the three countries’ commitment to such a union by harmonising capital market regulations and dismantling investment barriers. At the same time the representatives of the three countries reiterated their commitment to fully meet all regulatory obligations according to the highest international standards and best practice.

The goal of the initiative is to attract investment through the creation of a common capital market by combining the strengths of the three Baltic states and overcoming the constraints they often face due to their limited individual sizes.

The three countries first signed a Memorandum of Understanding (MoU) to create a capital market in November last year with active support of the EU and the EBRD. Several technical support projects have been launched since to lay the foundations of such a union including the framework for Pan-Baltic covered bonds and support for the further development of the regional fintech ecosystem. Support is provided by the European Commission (EC) through the Structural Reform Support Service (SRSS) and by the EBRD.

These efforts are already reflected in business activity. In recent months alone, the EBRD has made an equity investment in Auga Group, a leading producer of organic food; supported the privatisation of the Port of Tallinn with the acquisition of a stake; and invested in green bonds issued by Lietuvos Energija. This was followed by an investment in the debut bonds of the retailer Maxima Grupa and, most recently, in senior bonds by Luminor Bank.

Jurgen Rigterink, EBRD First Vice President and Head of Client Services Group: “We have seen good progress in the development of the capital markets union and we are especially pleased that this has also been accompanied by strong new investments. These two developments go hand in hand and they illustrate the EBRD’s approach, where we combine investments with policy engagement. We are pleased with the capital markets reform work in the Baltic states, including the creation of a framework for Pan-Baltic covered bonds, that we are delivering in cooperation with the EU’s SRS service. Today’s conference is a great opportunity to clear the way for further advances in this joint spirit.”

Valdis Dombrovskis, Vice-President for Euro and Social Dialogue, Financial Stability, Financial Services and Capital Markets Union, European Commission: "By developing their capital markets, the Baltics can better stimulate investment and economic growth. So it is a positive development that three Baltic states have teamed up to create a common and larger capital market space, regulated by coordinated rules. This will send a clear welcome message to European and global investors. The European Commission is supporting this effort through its Structural Reform Support Programme. In addition, the EU is working to facilitate and support investment into small and medium sized companies and strengthen local capital markets such as those in the Baltics through its Capital Markets Union initiative."

Märten Ross, Deputy Secretary-General for Financial Policy and External Relations, Ministry of Finance, Republic of Estonia:“Globalisation and other external market trends pose challenges but also provide opportunities to the capital markets of small countries. Estonia hopes that co-operation between the Baltics will help us to take advantage of our strengths and to develop well-functioning local capital market.”

Dana Reizniece-Ozola, Minister of Finance, Republic of Latvia: “Cooperation with the EC SRSS and the EBRD has unlocked the potential for the Baltic capital market. We have also further developed the concepts for the Baltic co-operation projects, which includes a pan-Baltic asset class in covered bonds which has generated great interest from potential issuers. Ongoing work on activating the Baltic equity market and mobilising our local investment by pension funds and other institutional investors, as well as facilitating visibility of the Baltics in international market indices, are the key steps to achieve the full potential of our capital market.”

Migle Tuskiene, Viceminister of Finance, Republic of Lithuania: "One year after the signing of the MoU, I am even more confident to reaffirm our dedication to work further on the deepening of the pan-Baltic capital markets. I am sure that coordinated actions can lead to great achievements. That is why a regional approach makes more sense than individual efforts. The synergy of cooperation between the three Baltic states can lead to a greater availability of sources of funding for businesses at lower cost and provide more opportunities for investors."

The conference will also provide the opportunity to gather policymakers, supervisory authorities and business representatives for an exchange of views. Participants will, among other issues, discuss the challenges and opportunities of a Baltic capital market union and the rise of fintech in the region. For the detailed programme see here.

The EBRD has been working in the Baltic states since 1991 and to date has invested some €2 billion in more than 250 projects in Estonia, Latvia and Lithuania. Strengthening private enterprises and developing the capital market are among the Bank’s priorities in these countries.

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