Cash Management in the Nordic and Baltic Regions 2015

Pan-regional cash management considerations

Published: Aug 2015

Despite the recent accession of Latvia and Lithuania to the Eurozone, the Nordic and Baltic region remains a largely distinct area with its own nuances that corporate treasurers need to navigate around. In this Section, we examine some of the region’s unique characteristics, paying particular attention to how the foreign exchange, banking and, by extension, cash management landscape has changed in recent years.


First and foremost, one of the major challenges to efficient cash management in the Nordics and Baltics is the variety of currencies in use among the different countries. Until very recently, the majority of the Nordic and Baltic states remained outside of the single European currency. Now, following the accession of Latvia and Lithuania to the Eurozone, there is an equal split. These countries, however, look likely to be last from the Nordic and Baltic region to join the euro, for the foreseeable future at least. Here we provide an overview of each country and its current relationship with the euro.

  • Denmark

    Denmark held a referendum in 2000, the Danes rejected the European single currency by a vote of 53.2% to 46.8%. In 2007, the country declared its intention to hold a new referendum on joining the euro by 2011. However, following the uncertainty that resulted from the sovereign debt crisis in Europe, these plans were postponed indefinitely.

  • Finland

    Finland has been a member of the euro since its inception in 1999.

  • Iceland

    Iceland is ineligible to join the euro because it is not a member of the EU. The country applied to become a member of the union in July 2009 and was granted candidate status in 2010. However, in September 2013, the country decided to suspend its application to join the EU until a referendum could be held on the question. A date for the referendum has yet to be confirmed.

  • Norway

    Norway is also ineligible to join the euro because it is not a member of the EU and it is not expected to become one in the near future. The country has twice held a referendum on membership – in 1972 and in 1994. On both occasions the proposal was defeated. The country is however part of the European Economic Area (EEA) and is a member of the European Free Trade Association (EFTA).

  • Sweden

    Sweden is obliged to adopt the euro at some point in the future, under the terms of the Maastricht Treaty. However the country has so far resisted and the currency is not yet within the Exchange Rate Mechanism (ERM II), which is a precursor to euro adoption. In 2003, Sweden held a referendum on joining the euro, which was defeated. Since then, public sentiment has largely been against adopting the euro for fear that businesses will be adversely affected. The country has no official target date for euro adoption.

  • Estonia

    Estonia became the first Baltic state to join the single currency on 1st January `011.

  • Latvia

    Latvia has been a member of the EU since 2004 and the country had planned to adopt the euro in 2008, but, as a result of the financial crisis, was forced to revise its expectations as inflation rose. Despite a series of additional setbacks, Latvia was able to retain its ERM II peg post-financial crisis and finally joined the euro in January 2014.

  • Lithuania had originally planned to adopt the single currency in 2007, but like Latvia, inflationary pressures prevented this. At the beginning of 2015, the country finally realised its ambition, becoming the 19th member of the currency union.

SEPA in the Nordic-Baltic region

As more Nordic and Baltic states become members of the euro, the cash management landscape in the regions should become somewhat easier and cheaper. Likewise, the introduction of SEPA has had a significant effect on cash management in the region, simplifying payments and collections. Many domestic card schemes have also been replaced with SEPA-compliant cards.

Banks in all of the Nordic and Baltic countries were early adopters of SEPA and the ISO 20022 XML standard. Although Norway and Iceland do not belong to the EU, they belong to the European Economic Area (EEA) and have likewise moved to adopt SEPA and the Payment Services Directive (PSD). Of all the SEPA countries, Finland is the most advanced. In fact, Finland was one of the first countries to boast full SEPA compliance, becoming 100% SEPA-ready in 2011.

SEPA is largely viewed by the Nordic and Baltic banks as a stepping-stone to further innovation in the transaction banking space. Consolidation in the payments space has also been driven by the introduction of SEPA, with the new Nordic payments group, Nets, having been launched in September 2010. Nets is the result of a merger between Norwegian Nordito AS, which is the parent company of BBS and Teller, and the holding company of the Danish company PBS.

From a corporate treasury point of view, as in other regions, SEPA has facilitated central treasury management and enabled companies to consider payment factories and/or shared service centres more readily. Companies have also been able to consolidate euro bank accounts, centralising accounting and simplifying processes, thereby realising significant cost savings.

This simplification of cash transactions should allow the banks to concentrate their time and money on facilitating cash management between the non-euro Nordic states, where separate currencies will continue to complicate the process.

However, for now, the disparate currencies of the region make aspects of cash management such as cash pooling more difficult. As more countries adopt the euro and make use of SEPA it is possible that for business purposes the region will no longer be split into Nordic and Baltic countries, but euro and non-euro countries.

Harmonisation between the payments infrastructures of euro and non-euro countries across the Nordic region has been on the agenda in recent years. One initiative which has focused on this objective is the Nordic Payments Area (NPA), a scheme that would have involved the harmonisation of payments standards and infrastructures across Denmark, Sweden, Norway and Finland using ISO 20022 XML. The ultimate vision was to create an area, like SEPA, in which businesses and consumers could connect and make payments to one another across any NPA country, regardless of currency. To date, very little progress has been made on this initiative and some industry commentators believe it may have been abandoned altogether. However, discussions between countries around payments infrastructure standardisation and harmonisation are nevertheless continuing.

Cash pooling and concentration

Cash pooling is well-established among the larger and more sophisticated companies of the Nordic region but is not quite as common among smaller companies, or in the Baltic states. With all three Baltic states now members of the Eurozone, uptake of cash pooling is expected to accelerate amongst corporates in the years ahead.

In general, the types of pooling structure available mirror those elsewhere, with one exception, single legal account pooling, described overleaf. Otherwise, the standard physical cash concentration structures of zero balancing, sweeping and topping are available, as well as notional pooling.

However, while notional pooling is permissible in all Nordic and Baltic countries, it is not widely offered because local restrictions prevent the banks from offsetting credit and debit balances for capital adequacy purposes. Notional pooling is therefore expensive in the region because banks charge a spread on the balances offset to compensate for the cost of capital.

Due to the expensive and restricted nature of notional pooling in the Nordic and Baltic regions, physical cash pooling is often a more attractive option. It is important to note however that the pooling solutions on offer will vary between banks and between corporates (depending on needs and legal set-up) and the following information only provides an indication of the type of solutions available. When considering cash pooling options in the region, it is vital to research each bank’s offering thoroughly.

Be aware that the terminology surrounding cash pooling will also alter between countries and between banks. In Sweden for example, single legal account pooling is sometimes referred to as ‘KoncernKonto’. In Estonia, a cross-border cash pool is often called a ‘Group Account’. Professional advice should also be sought regarding the legal and tax implications of any cash pooling structure.

Once the company’s cash has been effectively pooled, any surplus can either be reinvested into the company to minimise external borrowing, or invested for profit.

The investment instruments that are available in each of the Nordic and Baltic countries are outlined in the detailed country overviews in Section 4.

Also known as ‘balance netting’ or ‘Nordic cash pooling’, single legal account pooling is the solution most commonly used by Nordic companies and their subsidiaries in the region (the subsidiaries of MNCs from outside the region may prefer to use conventional zero-balancing).

In this form of cash pooling, a company opens a single master account with its bank. It also maintains ‘mirror’ accounts for the different entities within the pool, in order for them to keep their separate balances. These are not physical bank accounts with a legal existence, they are simply entries in a virtual ledger. The only legal account held by the company is the master account.

No physical transfer of funds occurs between the master and the mirror accounts. The company’s divisions use the mirror accounts as normal accounts, as if they were not part of a cash pool. The cash flows into and out of the mirror accounts which are then adjusted and recorded in the balance of the master account. Both overdrafts and interest can only apply to the master account.

Chart 1: Nordic cash pooling examples

Nordic cash pooling has been well-established ever since the 1980s. It remains the dominant form of cash pooling. However, with more and more of the large corporates using sophisticated ERP systems to do in-house reconciliations, many have implemented a zero-balancing cash pool as they can keep track of their internal debts and claims in those systems, rather than in the Nordic cash pool.

This type of pooling arrangement has its advantages. For example, since it is compatible with the payment factory concept, corporates who use a Nordic pooling solution can reduce the need to execute complex payment/collection-on-behalf-of (POBO/COBO) procedures.

Cross-border cash concentration

It is usual to pool a company’s cash in each country by currency initially. Once local pools have been set up, cash can then be further concentrated using a regional cash pool. Solutions across the Nordic-Baltic region are also available, usually on a case-by-case basis.

Cross-border interest compensation

As an alternative to a physical cross-border pool, companies can ask their banks to set up a cross-border interest compensation structure in order to enjoy the benefits of a cash pool without actually creating one. This is a limited form of notional pooling which allows for a partial offset of interest for balances in different countries and currencies, despite the capital adequacy rules.

In this type of arrangement, the bank takes into account the balance of all the domestic cash pools and then pays or charges interest as if the accounts were pooled. This avoids any need to translate cash balances into a common currency.

Although similar to notional pooling, interest compensation differs in that a different approach is taken in calculating the interest due. The bank applies improved interest rates – higher credit rates and lower debit rates – to the participating account balances, based on the offset between the credit and debit balances of the participating accounts.

Interest compensation set-ups are generally more popular in the Baltic countries than physical cross-border pooling arrangements. Although this may now change, with all three countries using the euro.

Residency restrictions for cash pooling

When considering setting up a cash pool in the Nordic-Baltic region, note that the ownership of bank accounts can have an effect on the company’s cash pooling structure.

For example:

  • Denmark

    Both residents and non-residents are allowed to participate in cash pooling. However, restrictions apply to inter-company lending to parent companies outside the EEA.

  • Estonia

    Both residents and non-residents are allowed to participate in cash pooling.

  • Finland

    Finland allows both resident and non-resident accounts to participate in cash concentration but some restrictions apply when setting up arrangements that include non-resident companies. Legal advice should be sought regarding these restrictions.

  • Iceland

    All transactions between resident and non-resident accounts need to be reported on a monthly basis to the central bank. Further information should be sought.

  • Latvia

    Both residents and non-residents are allowed to participate in cash pooling. However, since Latvian banks are not permitted to offset net credit and debit balances on their balance sheets, notional pools can be expensive to operate.

  • Lithuania

    Both residents and non-residents are allowed to participate in cash pooling. For the same reasons as cited for Latvia, notional pools can be expensive to operate.

  • Norway

    The combination of resident and non-resident accounts in a domestic cash concentration structure is subject to lending rules. Restrictions apply on inter-company lending in cross-border cash concentration structures, so including non-resident accounts can be challenging.

  • Sweden

    Cash pooling can involve both resident and non-resident accounts, with the approval of the central bank. There are however restrictions on inter-company lending to non EEA-parent companies.

Of course, aside from residency restrictions, close attention should be paid to each country’s thin capitalisation and transfer pricing rules.

Further details of each country’s rules can be found in Section 4.

Denmark: the Bombardier cash pool decision

The complications that can arise when interest payments associated with cash pools are ascribed to their various members were brought to light in a Danish court case in 2014. The case involved a Danish subsidiary of the Canadian Bombardier group that had entered into a zero balancing cash pool arrangement with a Swiss subsidiary as administrator. The arrangement was based on a daily overnight interbank rate, plus a spread of -0.5% on the Danish subsidiary’s deposits and +1.15% on loans from the administrator. The Danish subsidiary had a cash surplus resulting from pre-payments from customers, but in some periods it had placed all its excess liquidity in the cash pool under a short-term binding deposit, meaning that it needed to borrow from the cash pool for day-to-day cash needs.

Since the financing company in Switzerland was less creditworthy than a typical bank, the Danish tax authorities did not view the deposit as comparable to that of a deposit at a bank. Instead, the authorities took the approach of comparing the cash pool with a credit facility and, after accordingly netting the deposits and borrowings found this resulted in a net deposit for the Danish subsidiary. As a result, deductibility for the interest paid by the Danish subsidiary for its borrowings in the cash pool was denied. Using benchmark analysis, the tax authorities calculated the spread to be 118 bps. At the Danish National Tax Tribunal, the decision was upheld, but lowered the spread from 118 to 115 bps on the loan from the cash pool.

Cash management banks: Overview

Aside from the practicalities of cash management in the region, choosing the right bank or banks to work with is of course a major consideration. Although this is covered in more detail in Section 3, here we provide a brief overview of what to consider when looking for a cash management bank. Many so-called ‘global’ banks do not have significant on the ground presence in the Nordics and Baltics, where local and regional banking groups (predominantly Nordic) dominate. In the early 2000s, there was a lot of focus from global banks on building a presence in the region, but their efforts diminished following the onset of the financial crisis. For this reason, companies looking to do business in the region may find that their needs are best answered through establishing a local relationship.

The major cash management banks in the region include, in alphabetical order:

  • Danske Bank
  • DnB NOR
  • Nordea
  • SEB
  • Swedbank

Although market share might be concentrated among a group of leading Nordic banks, the competition among those with a stake in the Nordic and Baltic markets is fierce. Moreover, the preponderance of Nordic banks in the Baltic countries has created a number of synergies between the two regional banking sectors and has facilitated the implementation of many cross-border solutions.

Geographical coverage

When looking to establish a pan-regional cash management solution, a bank’s geographical coverage will play a significant part in the choice of provider. Good coverage across all countries in the region may be required, but one bank may not be able to provide the best services in each country. However, using many different banks in order to achieve both coverage and good services may prove too expensive to be viable. Treasurers need to weigh up their needs and come up with a balanced solution.

Fortunately, many banks in the region do have a presence in most, if not all of the Nordic and Baltic countries, or they have a partner bank with whom they work closely, or are part of a banking club such as IBOS. Nevertheless, treasurers should still take into account the number of countries that are covered by each bank. It is also important to gain as much information as possible about the nature of a bank’s operations in each country. For example:

  • Does the bank have a full branch or just a representative office(s)?
  • Are cash management services performed by the bank or by another party?
  • How well is the local bank integrated with the rest of the network?

Some companies may feel comfortable maintaining relationships through a lead bank, while some may feel the need to maintain separate banking relationships with their chosen banks in each country. The degree of centralisation of the company may influence this decision, but both approaches to bank relationships are common across the region.


The technical expertise of the banks operating in the Nordic-Baltic region is extremely high. Their back office systems are generally very efficient and they have embraced the latest electronic innovations, as well as standards such as ISO 20022 XML.

Given that the market is dominated by a handful of large banking groups, there is a high degree of uniformity in the cash management products and services on offer across the region. Nevertheless, the Nordic banks are always looking for new ways to assist their clients in achieving greater cash management efficiencies. For example, since the introduction of SEPA, a growing number of Nordic banks have been phasing out their current direct debit solutions in favour of an automatic e-invoice standing order, a recurring e-invoice process. Swedbank, for instance, rolled out this service to its customers in December 2014.

In the following Section, we provide more detailed information on the dominant banking groups and technology vendors in each country in the region.


All our content is free, just register below

As we move to a new and improved digital platform all users need to create a new account. This is very simple and should only take a moment.

Already have an account? Sign In

Already a member? Sign In

This website uses cookies and asks for your personal data to enhance your browsing experience.