Regional Focus

Doing business in the Nordic and Baltic Region

Published: May 2007

The Nordic and Baltic region

With a population of 31 million, the Nordic and Baltic region comprises a wide variety of languages, cultures and living standards. Yet the Nordic countries – Sweden, Norway, Finland and Denmark in particular – have much in common by sharing a similar way of life and social structure. In addition, the Nordic countries are also bound by the common history of the region and their longlasting relationships.

The three Baltic states – Estonia, Latvia and Lithuania – are all former constituents of the Soviet Union and only regained their full independence in 1990/91. In 2004, Estonia, Latvia and Lithuania together joined the European Union. Despite their similar size and common history, the Baltic countries are fundamentally a geographic region that remains culturally diverse.

All three countries have re-established their historic trading ties to the countries of the Baltic Sea area and first and foremost, the Nordic countries. As a result, companies operating both within and outside of Northern Europe often regard the Nordic and Baltic states, at least in economic and business terms, as a single region.

Business in the region

Economic development and competitiveness

While the Nordic countries are among the most highly advanced economies in the world, continuously achieving economic growth that is superior to the EU average, the Baltic states have experienced a brisk growth in recent years.

In addition the Nordic and Baltic region is highly competitive, which is illustrated by the fact that three Nordic countries (Denmark, Sweden and Finland) featured in the top four of the most recent Global Competitiveness ranking published by the World Economic Forum. The ranking, which compares the comparative strengths and weaknesses of the world’s economies, has seen the Baltic countries rise into the top 40 worldwide.

Technology and infrastructure

One reason for the economic success of the region is the strong political emphasis on technological development. The economic strategy of promoting not only research and development of telecommunication and information technology, but also its adoption and use across society, has enabled the Nordic countries to maintain comparatively high levels of social welfare provision.

The Baltic countries – and in particular Estonia – have used similar strategies, reflected in the wide use of computers and mobile phones and the accessibility of the internet, to manage the difficult transition from planned market economies to economies that are fit to join the European Union and eventually adopt the euro.

The high levels of technological infrastructure and IT used by companies and the public in the Nordic and Baltic region is highlighted in the Global Information Technology Report that was also released by the World Economic Forum. Denmark and Sweden are the top two countries in this ranking and all the Nordic countries are in the top 10. Estonia’s successful promotion of IT in society and business, has lifted it into the top 20 of the world’s economies in the use and development of information technology.

Market entry barriers and market access

Foreign companies that seek access to the region will generally not face any particular problems as all countries, with the exception of Norway, are EU members and EU laws and regulations apply throughout the region. The Nordic and Baltic countries who are also keen to attract foreign direct investment and companies from the EU will not find the conditions to enter the region more burdensome than elsewhere in the EU. In fact, EU membership of the Baltic states has presented many multinationals with the opportunity to integrate their operations in these countries much more efficiently.

Treasury activities in the Nordic and Baltic region

Banking in the region

The banking sector in the Nordic and Baltic region is closely integrated and dominated by local banks. As in other countries, the banking sector in the Nordics has been characterised by fundamental restructuring and the adoption of new technology E-banking services have become more widely offered and used than in the rest of Europe.

At the same time, many banks in the Nordic countries have expanded during the past decade. In order to increase their customer base and seek new business opportunities, several banks first expanded their operations into the neighbouring Nordic countries, either by setting up subsidiaries and branches or through outright mergers and takeovers. The relatively low cultural barriers between the Nordic countries facilitated the process. In a second stage Nordic banks moved into the Baltic countries by acquiring the largest Baltic banks. Today the Baltic banking sector is dominated by large Nordic banks.

As a result of these developments, a distinct Nordic approach to banking has been introduced to the Baltics and a number of Nordic banks provide service coverage in the entire Nordic and Baltic region.


The focus on the adoption of new technologies in the Nordic countries is reflected in high rates of payment automation, with a higher proportion of electronic payments and a more advanced use of e-invoicing than in other European countries. At the same time, cards and credit transfers are more widely employed than elsewhere in the EU. The relative efficiency of giro transfers has also meant that direct debits are less common in the Nordics.

The Baltic states are catching up quickly in terms of payment automation. However, the differences between the Baltic countries in the electronic processing of payments remain pronounced. Estonia is the most advanced country in this regard, whereas Latvia, and to a greater extent Lithuania, are still managing the transition from paper-based to electronic payments. Cash remains an important payment method in the Baltic countries, while the use of cheques and direct debits is fairly limited.

Despite the diverse nature of the payments landscape, banks are offering modern e-banking and e-invoicing solutions covering the entire region. The trend towards more efficient and streamlined payment links in the region will continue once the Baltic countries adopt the euro as this will also mean that they are going to be eligible to join TARGET, the European payment system that links domestic Real Time Gross Settlement systems for cross-border credit transfers.

Cash management services – a holistic view of treasury

Nordic banks have a long experience in the provision of cash management services. Traditionally, Nordic banks followed successful domestic companies through their development and expansion stages and responded to the corporate demand for solutions that suited varying degrees of cash management centralisation and geographical reach.

Many Nordic banks try to gain a competitive edge through advanced customer relationship management and differentiated delivery channels. In addition, banks such as SEB are taking a holistic view of cash management. SEB has developed the concept of the Cash Management Value Chain™ in order to enable corporates to benchmark all aspects of their liquidity handling to that of the world’s most advanced companies.

Global Head of Cash Management at SEB, Erik Zingmark, explains there were two main reasons for establishing the Cash Management Value Chain™ concept: “After so many years of working with sophisticated clients we had acquired a great deal of knowledge in liquidity management and customers’ internal financial processes. The Cash Management Value Chain™ structures this knowledge and experience in order to offer a more generic approach to our clients. The second reason was the introduction of quality management techniques, like lean production, which includes working capital management. The Cash Management Value Chain™ is the response to this trend by offering maximum value from a banking perspective.”

The Cash Management Value Chain™ is organised along five mega-processes of liquidity management (encompassing purchasing and sales), cash positioning, cash flow forecasting, short-term investments/funding and payments. In each area, SEB is able to offer the tools necessary to improve a company’s liquidity management effectively. “The main focus is to release tied-up capital and in turn to increase the control over funds,” says Zingmark. “By improving the quality of the liquidity management you will also reduce the costs.”

The concept aims to improve the efficiency and cost of cash management by looking beyond the mere banking fees and transaction charges and focusing on efficiency gains in the handling of administrative processes. This is achieved through a team of dedicated advisers that analyses a company’s current processes on the basis of best practice and individual organisational needs.

Case study

Deutsche Post World Net

Portrait of Carola Schmitz-Becker

Carola Schmitz-Becker

Head of Cash Management

Deutsche Post World Net integrates the services of Deutsche Post, DHL and Postbank. The group employs around 550,000 people in more than 220 countries and posted revenues of 60 billion euros in 2006. In the Nordic and Baltic countries Deutsche Post World Net is represented by its transportation and logistics firm DHL.

Deutsche Post AG has a centralised treasury with regional treasury centres that are based at the company’s headquarters in Bonn, Germany, Singapore (Asia Pacific) and Fort Lauderdale (Americas). The Nordic and Baltic countries are managed from a European regional treasury centre. In 2003, Deutsche Post’s group treasury focused on integrating the Nordic and Baltic countries into the group’s global cash pools. According to Carola Schmitz-Becker, Deutsche Post’s Head of Cash Management, the group already had local cash pools in the area, which needed to be concentrated in a regional cross-border cash pool. In the subsequent tender Deutsche Post selected SEB as the cash management provider for the entire Nordic and Baltic region.

Schmitz-Becker explains that there were two main reasons influencing this choice. On the one hand the company wanted to manage the region from only one access point. Schmitz-Becker states: “We did not want to deal with a dedicated account manager in each individual country, but wanted instead to have one designated account manager for the region as a whole.”

In addition, Deutsche Post had trouble integrating the typical Nordic cash pooling form, where all single transactions are swept into the concentration, into its in-house banking system. In order to align the Nordic and Baltic cash pool with the group’s other regional cash pools, Deutsche Post’s treasury preferred a zero balancing approach whereby all transactions are grouped for each entity. Schmitz-Becker explains: “At the time none of the banks involved in the tender was able to offer zero balancing for the entire region. However, SEB was able to develop a solution which enabled us to receive aggregated zero balanced account positions for each entity, which we could then integrate into our in-house banking system.”

Deutsche Post now manages a Nordic and Baltic cash pool in which account balances from across the region are concentrated (in local and foreign currencies) at the end of each day. The comparatively small size of the Nordic and Baltic region for the group, which has an annual turnover of €2,000m in the Nordic countries and about €45m in the Baltics, meant that Deutsche Post AG required an easy and efficient solution in terms of implementation and management covering the whole region. But as Schmitz-Becker states, “Once the initial problem of zero balancing was solved by SEB we did not experience any problems with the region at all.”

Cash pooling

Banks have focused on regional solutions reflecting the business relationships within the Nordic and Baltic area. Even though services such as cash pooling are fairly new to the Baltic states, the strong influence of Nordic banks ensured that domestic cash management solutions today are commonplace and cross-border cash pooling is well developed throughout the region, albeit primarily practiced by large multinationals.

The provision of treasury services, such as cash management, remains a complex issue, as the region encompasses seven countries with different cultures, languages, regulations and currencies.

So far Finland is the only country that has joined the euro, whereas the Baltic states are expected to join in the near future. Denmark and Sweden, on the other hand, have rejected the euro-introduction and Norway is not a member of the EU. Consequently, any regional cross-border cash pool structure becomes complex simply due to the number of currencies involved. In addition, notional pooling – even though permissible – is a relatively expensive solution for banks in the region as they are not allowed to offset debit and credit balances for capital adequacy purposes.

Due to the practical limitations to notional pooling, Nordic banks have developed genuinely Nordic cash pooling solutions in the form of cross-border interest compensation, which is a limited form of notional pooling that allows for a partial offset of interest for balances in different countries and currencies.

For many foreign multinationals, the key to managing cash in the Nordic and Baltic region is to have one access point to the region and to manage all countries involved from there. This approach guarantees a uniform implementation process with centralised support and harmonised account opening procedures and documentation. However, not all banks are able to offer this service.

Many multinationals also often demand cross-border zero or target balancing solutions, to match their cash pool set-ups elsewhere in the world. This is also catered for by some of the banks in the region.

Regulatory issues

Any business activity taking place in more than one Nordic or Baltic country will need to take different currencies, tax and legal systems into consideration. However, on the whole legal and tax regulations are not particularly restrictive in the Nordic and Baltic countries compared to other regions. In part this is due to the EU membership of the Baltic states, which required the countries to align legal and tax regulations with EU laws.

The implementation of EU regulations has not yet taken full effect in all Baltic countries and some EU directives, such as the EU Interest and Royalties Directive, will be implemented in stages. Regulations likely to affect treasury activities include:

  • Lending rules.

    The funding of operations in the region may be affected by lending rules. Countries such as Finland or Norway restrict lending between resident and non-resident companies. Other countries, including Denmark, apply similar restrictions to non-resident companies located outside the EU or EEA (European Economic Area).

  • Thin capitalisation.

    Thin capitalisation rules, which were introduced to restrict the amount of debt financing by foreign shareholders or related parties to their subsidiaries, are effective in Denmark, Latvia and Lithuania. All three countries have restrictions on inter-company or shareholder loans and related interest payments that exceed a debt to equity ratio of 4 to 1. Loans and interest payments, which in theory represent an opportunity to move taxable profits out of the region, are no longer tax deductible as business expenses if the ratio is exceeded. Norway has similar rules but no specific debt to equity ratio is given.

  • Withholding tax.

    Inter-company lending in the region may also be subject to withholding tax (WHT), as is the interest received on bank deposits. While WHT can be credited against a company’s corporation tax it limits the company’s liquidity. Lithuania and Latvia will eliminate WHT on bank interest paid to non-residents in 2009 and 2011 respectively. Until then different WHT rates will apply. Denmark and Finland also impose WHT on interest paid to non-resident companies unless they meet specific conditions. WHT may also be due on dividends and royalties paid to resident companies in Denmark and non-resident companies throughout the region. In most countries, WHT payable can be limited or eliminated by applicable tax treaties or under the EU Parent-Subsidiary Directive, if specific shareholdings requirements and other criteria are met. Non-EU member Norway has similar exemptions for non-resident companies located in the EEA.

  • Transfer pricing.

    The pricing of inter-company transactions is another way of moving profits from high taxation to low taxation countries. Transfer pricing regulations attempt to prevent the charging of unrealistically low or high prices on inter-company transactions compared to the price of transactions between unrelated parties. All Nordic and Baltic countries follow the OECD guidelines on transfer pricing, which require all trades between related parties to be documented and conducted at arm’s length.

  • Central bank reporting.

    In all countries of the Nordic and Baltic region, except Finland, cross-border transfers exceeding pre-defined limits must be reported to the local Central Bank.


It should be remembered that the legal framework in the region is constantly changing and likely to tend towards a greater degree of harmonisation. The introduction of the euro in the Baltic countries which is anticipated in the near future will result in further changes, but also further harmonisation, and will almost certainly facilitate business activities in the region even further.

SEB Merchant Banking

SEB Merchant Banking is the leading merchant bank in the Nordic and Baltic region. Over the years, we’ve followed many of the region’s companies and financial institutions from that first fledgling stage – until they’ve become world players in the international arena. From that perspective, we see ourselves as part of a much greater industrial and commercial whole.

Working together with our customers, we produce administrative and financial value. That’s why we do all our development work – whether it be systems for forecasting liquidity, netting or account management – in close collaboration with our customers. And we’re convinced that this is one of the reasons why both Euromoney and TMI have ranked us best cash management bank in the Nordic and Baltic region in 2004, 2005 and 2006.

Want to know more about what we can do for your cash management?

Contact details:
Erik Zingmark
Global Head of Cash Management
+46 8 763 84 35
Erik Seifert
Head of Cash Management
+46 8 763 92 02
Peter Lohk
Head of Cash Management
+47 2282 70 83
Kirsi Larkiala
Head of Cash Management
+358 9 616 282 21
Ole Wulff
Head of Cash Management
+45 333 685 10
Tadas Dovbysas
Head of Cash Management
+370 52 68 2322

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