LPB Bank interview for Forbes magazine

Treating clients with empathy in the face of changes

The pandemic has driven major changes in people’s habits and has set limits on what they can do, but the need for banking has not only endured, it has actually increased in certain niches. The new reality imposed by the virus dictates the expansion of the entire playing field for e-merchants, and we can deliver a solution that will meet their changing business needs. Mortgage lending has also been more active during the pandemic, and we are ready to explore the best solutions for our clients in this area as well. LPB Bank has maintained its individual approach to each client in this new reality. LPB Bank smaller size means that we are able to adjust with greater flexibility, meeting the challenges that this changing world presents on a daily basis.

What banking services are currently in highest demand?

In spite of all the challenges, transformations, and restrictions – which have affected everyone for more than an entire year now, our clients’ interest for classic banking service remains unchanged: current accounts, term deposits and payment cards, as well as safe deposit boxes are all popular with LPB Bank clients.

During the past year, LPB Bank noticed increasing interest for enterprise services in the domestic small and medium enterprise (SME) segment. As we develop our services and adapt them for local market players, the bank is able to provide everything they need for successful business operations, from everyday service to major lending and investment projects. Although clients have been choosing remote service options more frequently, LPB Bank maintains a professional, personal bank-client relationship and takes great care to offer state of the art technical solutions, personable communication and feedback at all times.

For many years, business payment cards have been one of the most popular banking services. Close cooperation with Mastercard has helped LPB Bank develop a range of card services that will meet the demands and preferences of clients in a variety of segments. Technical versatility, guaranteed purchase and settlement security, modern design, a loyalty programme, and very attractive pricelists all motivate potential enterprise clients to choose in favour of LPB Bank payment cards.

We have also been seeing rising client interest for e-commerce. Thanks to effective operation of our e-commerce services, fee income increased by 27% in 2020.

What services has the bank introduced or modified since the Covid-19 pandemic began?

The Bank’s strategy is founded on development of e-commerce and cooperation with fintech companies. To keep a step ahead of the competition, we continually track the latest trends in this space and develop our solutions accordingly. After hearing the requests and expectations of our clients, we introduced support for acquiring online card payments in a number of exclusive currencies. Our clients now have access to payment processing in over 100 currencies, which, you would agree, presents an excellent opportunity for business growth. We listen to, and heed, the needs of even the most exacting e-merchant. The bank acquires payments worldwide, with a high conversion rate – an essential indicator for online business.

Cultivating such a modern range of products means that we can provide the services and technologies a client would expect from a bank today. We always seek out new developments in banking worldwide, aiming to adjust to the changing marketplace quickly, and without extraordinary effort. To a large extent, our smaller size is an advantage – we can get to a new destination faster than the competition.

Last year, the finance industry talked a lot about corporate lending, a space where non-bank lenders have recently been active as well. What do you think has changed in the minds of entrepreneurs to spark such a sharp increase in demand? Could it be that businesses are using the crisis as an opportunity for development, or are there different underlying reasons for this trend?

There could be any number of reasons. One possibility is that entrepreneurs are in the process of revising their operational strategies to adapt to the new environment, looking for new ways to develop. Another possibility is that they need more capital in order to weather the crisis. The main reason why non-bank lenders have entered this space is that, in the face of the crisis, the financial performance of many companies has worsened, and banks have been finding it difficult to extend loans to such clients. A non-bank lender’s main concern is collateral, it has fewer solvency demands than a bank does.

We believe that the main cause here is not increased demand for loans, but impaired capacity for banks to provide financing amidst the crisis – as it is difficult to forecast its duration, severity, or the capacity of businesses’ cash flows to spring back. Many companies rely on refinancing to optimise cash flows and overcome the financial crisis. According to Finance Latvia Association data, the lending volume contraction has been observed primarily in the corporate segment for the past 12 months. In 4Q2020, lending decreased by 3%, or EUR 0.34 billion compared to 3Q2020. During the past 12 months in total, the decrease was 4%, or EUR 0.52 billion. Business loans account for 57% of the lending market by volume.

For what purposes do companies use loans most frequently? Are these circulating assets or major investments? Are loans used as co-financing in addition to other support mechanisms? How has this space changed since the pandemic?

We have observed increased business demand for circulating assets, which is logical – revenues are down but expenditures have mostly remained the same, and must be handled in due time. Increasing the volume of circulating assets here is a natural move towards covering regular company spending. At the same time, some companies are seeing development opportunities and pursuing long-term finance.

Given the frequent discussions among financial institutions about lending to businesses, it appears that other loans, such as private lending, have lost significance. What is the situation in the mortgage lending niche, for example?

On the contrary, the market for mortgage loans has become quite animated, with great demand for mortgages among clients. Lifestyles are changing, many people work from home and see a need for more space where they can work effectively, or where they could provide their children with a proper remote learning environment. Others understand that they can now move to the outskirts of the city because they no longer need to commute back and forth every day. People’s lives, their worldviews and demands have changed. With negative moods prevailing, fewer spending decisions are made in favour of luxury goods, which no longer give the same effect in public spaces. People are choosing to buy new properties that match their current needs and the situation, because we can objectively see that a 100% return to the way we used to live and behave is not possible, and some of us will not even want to go back. People have made savings during the pandemic because, as we mentioned, spending opportunities have become less appealing, and some are able to acquire real property as a result.  We cannot agree that other types of loans are no longer relevant. The Altum agency continues to facilitate lending, with support for both individuals and companies. We at the bank see that mortgage lending is definitely on the rise.

LPB Bank also provides safe deposit box services. People have been travelling less during the pandemic, and have not been able to spend large amounts due to social restrictions. Have they begun using secure storage more, or do they invest their free funds in stocks, securities and ETFs?

There have been a lot of changes in client habits over the course of this past year. Many services have lost relevance, while others are seeing ever increasing demand. More of our clients have been using individual safes for storing documents and valuables. Since the pandemic began, demand has risen swiftly. Because opportunities for spending one’s savings on travel, large purchases or investments are relatively limited, a certain number of our clients are relying on the bank to keep custody of their assets. Clients have become much more careful overall, placing value in stability and resilience. Safes are a great solution in this case, guaranteeing that family valuables will be stored by experts in a secure location, rather than at home.