Page 14 - bne_Magazine_March_2018

14 I Companies & Markets bne March 2018
Collapse of ABLV prompts new questions about stability of Latvia’s leading banks
bne IntelliNews
Leading Latvian commercial bank that was hit by US accusations of money laundering that sent it into
a tail spin fell on its sword at the end of February:
the third-largest lender ABLV Bank decided on self-liquidation on February 26.
But the aftershocks are still shaking the Baltic republic’s financial sector. The high ratio of non-resident funds on the liability sheets of several Latvian banks is prompting questions about the stability of the banking sector in general.
ABLV relied heavily on non-resident deposits for funding and its swift failure has now put other banks with a similar profile into focus. The Latvian banking system has a long history of providing a safe haven for dodgy money from dubious sources in Russia and other post-Soviet states.
“Although the developments are credit negative for all banks, those that rely more heavily on non-resident deposits to fund their operations are the most vulnerable, including ABLV, Rietumu Banka, and Norvik Banka,” Moody’s said in a report.
Rietumu’s business model is “geared toward affluent international individuals, and as of year-end 2016 62% of its total lending was to borrowers in countries that are not part of the OECD,” Moody’s said. “We believe [that] infers a high degree of non-resident deposits,” the ratings agency said.
The Russian-owned Norvik Bank’s non-resident deposits were 57.8% from non-OECD countries at the end of 2016, including 25.3% from Russia. Rietumu is a top five Latvian bank with
a 12% assets share, while Norvik is the eighth largest banks
at 3%. But Latvia’s sixth largest bank by assets Citadele has already reduced its exposure to non-resident deposits and is “well positioned” to withstand the pressure.
Still, many Latvian banks can’t kick their bad money-making
habits, forcing the regulator to step in several times in the last two years to curb the most egregious abuses.
A French court fined Rietumu €80mn in July for example for its role in a tax dodging scam that removed at least €200mn from the reach of the French tax authorities. In March 2016, the Latvian Financial and Capital Market Commission (FKTK) pulled the license of Trasta Komercbanka for involvement in money laundering.
A June 2016 report by the Organized Crime and Corruption Reporting Project (OCCRP) claimed that Latvian banks advised customers on how to use bogus offshore companies to launder money or evade taxes.
And it was money laundering that got ABLV Bank into trouble in the first place after the US Treasury’s Financial Crimes Enforcement Network (FinCEN) accused the bank of washing North Korean cash connected to its missile programme. ABLV denied the allegations.
After a run on the bank’s deposits, the European Central Bank (ECB) said ABLV should be wound up and saving it was not in the public interest.
ABLV has now given up the host and decided on self- liquidation on February 26, the beleaguered lender announced. “ABLV Bank believes that in this way, it will be best able to ensure the protection of its assets to settle with all customers,” the bank said.
For now, the banks’ deposits remain unavailable on the orders of the FKTK. Deposits are guaranteed up to €100,000 in line with EU law and paying them back to owners could cost he Latvian budget around €470mn. At the end of the first half of last year, ABLV’s assets were worth nearly €3.9bn, according to data from Standard & Poor’s.
www.bne.eu