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32 I Central Europe bne April 2018
Collapse of ABLV prompts new questions about stability of Latvia’s leading banks
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.
Norvik Bank’s non-resident deposits were 57.8% from non-OECD countries at the end of 2016, including 25.3% from Russia,” Moody’s noted.
Rietumu is a top five Latvian bank with a 12% assets share, while Norvik is the eighth largest bank at 3%.
On the other hand, Moody’s noted, Citadele – Latvia’s sixth largest bank by assets – has reduced its exposure to non- resident deposits and is “well positioned” to withstand pressure.
However, it is not just perceptions that put Latvian lenders at risk. Authorities had to step in a few times in the last two years to react to the Latvian banks’ suspi- cious dealings.
For example, a French court fined Rietumu €80mn in July 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 Commis- sion (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.
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The high ratio of non-resident funds on the liability sheets of several Latvian banks is prompt- ing questions about the stability of the banking sector in the Baltic state after the third-largest lender ABLV Bank collapsed.
ABLV relied heavily on non-resident deposits for funding and its swift fail- ure has now put other banks of similar type into focus for their vulnerability to “negative external perceptions”, Moody’s wrote in wrote in reaction to the collapse of ABLV on February 26. The Latvian banking system has a long history of laundering money from dubious sources in Russia and other post-Soviet states.
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“Although the developments are credit negative for all banks, those that rely more heavily on non-resident deposits
“ABLV relied heavily on non-resident deposits for funding”
to fund their operations are the most vulnerable, including ABLV, Rietumu Banka, and Norvik Banka,” Moody’s wrote.
Rietumu’s business model is “geared toward affluent international indi- viduals, and as of year-end 2016 62%
ABLV Bank folded after the US Trea- sury’s Financial Crimes Enforcement Network (FinCEN) said earlier this monththat the bank was taking part in money laundering operations as well
as transactions traceable to the North Korean missile programme. ABLV denied the allegations.