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Fitch claims situation with ABLV Bank does not threaten Latvia’s credit rating

Photo: flickr.com/Bertrand.
Fitch credit rating agency does not view ABLV Bank’s collapse as a threat to Latvia’s credit rating, because initial signs have not shown that rapid withdrawal of deposits has affected other banks. This means that in spite of the strike on reputation, the country’s non-resident service sector is able to absorb risks without increasing the country’s debt.

The agency does not expect liquidation of ABLV Bank to have a major impact on Latvia’s financial state. The total size of insured deposits in the bank is estimated at EUR 470 million. Latvian authorities estimate it will be financed using the bank’s own assets. If the bank experiences lack of finances, payments will be performed from the deposit guarantee fund. If even this is not enough, the fund will borrow money from local banks without government guarantees.

Throughout 13th to 19th February approximately EUR 600 million in deposits were withdrawn from the bank. On top of that, 70-80% of this amount left Latvia’s banking sector. No major outflow of deposits from other non-resident serving banks has been observed, as reported by Fitch.

The announcement mentions that the possibility of Latvia’s financial sector suffering a serious blow to its reputation was increased by the arrest of the governor of the Bank of Latvia Ilmārs Rimšēvičs, who is accused of extortion of a bribe.

As it is known, European Central Bank made the decision to commence the liquidation process, which is to be realized in accordance with Latvia’s laws.

Following ECB’s instructions, FCMC applied payment restrictions on ABLV Bank on 19 February. Because ECB gave no instructions to lift restrictions, FCMC decided on the night to 24 February that unavailability of deposits took place in ABLV Bank.

ABLV Bank admits the decision made by FCMC means liquidation process will soon commence. ABLV Bank links the commission’s decision with political reasons.

Problems for ABLV Bank started when Financial Crimes Enforcement Network (FinCEN) of US Department of Treasury announced in the middle of February that it plans to establish sanctions against ABLV Bank for money laundering activities that had assisted with North Korea’s nuclear arms programme, as well as illegal activities in Azerbaijan, Russia and Ukraine.

The report published by FinCEN details that until 2017 the management of ABLV Bank had been using bribery to influence officials in Latvia in an attempt to avoid legal action and threats to its high-risk operations.

On Friday, 23 February, ABLV Bank’s account in the Bank of Latvia had EUR 693,988,000, which is 78.4% more than last year, according to information published by the bank. On 23 February, ABLV Bank’s investments in securities were around EUR 939,104,000, which is 47.5% less than the year before. Unfinished transactions using securities formed EUR 409,082,000.

At the same time, published financial results show that ABLV Bank’s asset value was EUR 3.311 billion on 23 February, which is 10.2% less than last year.

Asset-wise ABLV Bank was the third largest bank in Latvia in September 2017.


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