Analytics, Banks, Crisis, EU – Baltic States, Financial Services, Latvia, Rating

Early signs are that deposit flight has not spread to other banks, suggesting that despite reputational damage the materialization of a long-standing risk posed by a large non-resident-serving banking sector can be absorbed by the financial sector without a meaningful increase in sovereign liabilities, the agency says.

The agency noted that ABLV Bank is the largest of the Latvian banks that primarily service non-resident deposits (NRD). Fitch has long viewed the NRD sector as a risk to Latvia's financial stability and will be monitoring whether any contagion arises from ABLV Bank's failure.

Around EUR 600 mln in deposits was withdrawn from ABLV Bank between February 13 and February 19. So far, there have been no abnormal flows observed from other NRD-serving banks.

Fitch does not expect ABLV Bank’s failure to affect government finances materially. Total insured deposits in ABLV Bank are estimated at EUR 470 mln, which the Latvian authorities expect to be financed from the bank's assets. Any shortfall would be covered from the EUR 158 mln Deposit Guarantee Fund. If necessary the Fund would borrow (without government guarantee) from local banks.

Fitch also said that separately, the potential for Latvia's financial sector to suffer reputational damage was heightened by the arrest of the country's central bank governor Ilmars Rimsevics on bribery allegations (which he denies).

As reported, shareholders of ABLV Bank at an extraordinary meeting on Monday made a decision to start the liquidation process in order to protect interests of its clients and creditors. ABLV Bank believes that in this way it will be possible to ensure active protection of its customers, the bank said in a statement.

LETA also reported that the Latvian financial regulator, the Finance and Capital Market Commission, acting on the instructions from the European Central Bank (ECB), has ordered ABLV Bank to stop all payments as of February 19 following a report by the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of Treasury about ABLV Bank's involvement in international money laundering schemes and corruption. On February 24, the Finance and Capital Market Commission made a decision on occurrence of unavailability of deposits at ABLV Bank.

At the end of September 2017, ABLV Bank was the third largest bank in Latvia by assets. The bank's majority shareholders Olegs Fils, Ernests Bernis and Nika Berne own, directly and indirectly, 87.03 % of the bank's share capital.