Latviski English По-русски
Tuesday 20.03.2018 | Name days: Made, Irbe

Tverijons: banks declare war against «shadow» economy

(+1 rating, 1 votes)

The Association of Commercial Banks of Latvia President Teodors Tverijons

Companies suspected of shadow bookkeeping and balance sheets not in order will have difficulties in getting loans from banks.

The Association of Commercial Banks of Latvia President Teodors Tverijons told in an interview to BNN. He also invites entrepreneurs not to rely on such a business model that provides basing development only on loans saying that in the post-crisis Latvia the model will not work any more.

He also notes that soon many companies’ names that have made use of money laundering scheme services will be announced publicly. T.Tverijons is convinced that there are well-known and large companies of Latvia among the ones that have used the scheme’s «services».

Do you think borrowers’ – physical and private entities – way of thinking has changed? Do people who have experienced the crisis now consider more carefully what they can afford and what not? Will people be more cautions after the economy is back on the «track»?

The life obliges them to adjust. But I do not exactly know about physical entities.

Speaking about businessmen…

I believe that they will understand that their way of thinking has to alter as well. The philosophy of attitude of how to build your own enterprise has to change. It is not right that a company is developed only on the basis of lent money. From the point of view of business, commercial loans are meant to help to solve short-term problems – for credit current assets or loans for making small adjustments in cash flow etc.  also for small projects implementation.

When speaking about serious development, a credit cannot replace actual investments, as serious development can only take place on the ground of investment. For example, in structural funds projects calling for European Union (EU) cash acquisition. On the other hand 50 or 60% is formed by money from structural funds and the rest 40% is formed by an entrepreneur’s personal investment. One has to invest also his or her own personal capital; however knowing that many do not have it at all – currently the most popular method is to found a limited liability company (Ltd.) with the starting capital of two thousand lats stock capital and get the rest of the money by obtaining a loan from a bank. These business projects are very well developed, this is not the problem. The problem is that a million lats worth project simply cannot be supported only by a bank’s money – the businessman himself not running any risk. If the project does not succeed, everything is lost, including the EU and the bank’s money, yet the most responsible person, the promoter of the project loses only his idea and two thousand lats.

What is the difference between loans and investments?

As a result both investments and loans ensure the necessary financial resources for the project’s development. The difference is that, in case of a loan – the bank is the investor. Unfortunately there are no investment banks in Latvia providing such services. In other words there are no financial institutions operating as investment funds or banks that enter a deal not only with its financial resources but also as the supervisor whose share and contribution in the company is much more extensive. That way the investment bank bears the same responsibility as the founder of the idea. The essence of crediting is that banks issue loans and later on they only focus on receiving regular payments. The bank is forbidden to interfere with the development of the project, except when there are specific restrictions, contracts or some special case. Only in the case of actual investment, we discuss more serious development. Therefore investments and in general how to attract them is a very important matter to consider.

And not development based on loans?

Exactly, but this is only one aspect of the issue. The other is that enough time has passed and entrepreneurs, who are not working for the first year, should concentrate on stabilization of their own capital. Of course, there are companies that invest or place a considerable part of their profit on increasing their capital. However, there are also enterprises diverting profit to dividends or using it simply to rise their welfare. Considering the level of welfare, many Latvian businessmen reached the living standards of their colleges from the West a long time ago. What I mean is their lifestyle with expensive houses, sophisticated cars and yachts. Many of our businessmen reached the European average level of living standards many years ago. But we are currently reviewing our clients – the numerous companies’ balance sheets and the amount of their own capital. There is no doubt, this figure is far behind the European Union’s. Banks have learnt a very serious lesson and they will base their future decisions on this bitter experience. Businessmen should understand that further on, banks, when issuing credits will consider the company’s equity and the company’s book value more seriously. Those wanting to start their own business, the so called beginners, will not have problems in borrowing through government support programs. It will not be difficult to get medium size loans, yet the greatest problems will arise to those who will not have learnt from the crisis. Companies with balance sheet and stock capital not in order will fail in getting a loan. There are very many companies whose balance sheets actually do not reflect the real situation.

Do you mean the so called «double bookkeeping»?

It is exactly what we are talking about. The shadow economy must have grown out from somewhere. What is clear is that those who practice shadow economy and companies involved in this will also have serious difficulties in obtaining bank’s finances. I believe that soon interesting information about Latvian enterprises will become public. Last year as well as this one, the Financial Police has identified at least 20 money laundering groupings. The group did this «business» for a living. But enough with the crime. The most interesting will come when trial begins, investigation ends and we will finally get to know the users of the «service». The society, except for me, will be very surprised when it turns out that many large and well-known Latvian companies are among the users of this kind of crime. Therefore reputation will also matter for crediting. Companies with dubious reputation will face serious problems in the loan issues.

But speaking about the shadow economy, banks are approached by companies wanting to borrow. Banks certainly have broad access to companies’ balance sheets. Banks already have some idea who are those companies which practice «double bookkeeping», or are using your mentioned schemes’ services…

There is no doubt banks know that. Sometimes it is even enough to take a single figure from one paper, another figure from another paper, put them together and you see that they simply do not «match»… and then you start questioning. Discovering this is very easy for professionals. Similarly as a doctor can say what the matter with his patient is considering his symptoms, banks often see what actually is going on as well. Much depends on the client, if he is stubborn in his lies or not. If he goes on lying, it is clear that the bank will not issue the loan.

Really, banks know this very well, they know information they cannot spread publicly due to stipulations of the law. Banks are forbidden to provide any information regarding clients’ transactions; yet at the same time clients themselves are not prohibited anything – the can say whatever they want.

Leave a reply

France's ex-leader Sarkozy in custody over links with Libya

French ex-President Nicolas Sarkozy has been taken in custody on March 20 and was held in custody on Tuesday and interrogated amid an investigation into whether late Libyan leader Muammar Gaddafi added funds to his 2007 election campaign.

KVV Liepājas metalurgs’ steelworks bought out by Austrian Smart Stahl

The auction for the sale of the insolvent KVV Liepājas metalurgs rolling mill equipment concluded with the victory of Austrian Smart Stahl GmbH, as confirmed by insolvency administrator Guntars Koris.

Entomologist: at least 5% of ticks in Latvia are infected with encephalitis

There have been cases of tick activity during the winter period in Latvia this year. As air temperature increases, ticks become active and start popping up. This means residents should seriously consider vaccination to avoid getting encephalitis from tick bites, entomologists say.

Rail Baltica station’s construction at Riga airport will cost EUR 4.5 million

Creation of a separate railway station and related infrastructure at Riga International Airport as part of Rail Baltica project will cost EUR 4.5 million, says the project’s manager in Latvia and board member of European Railway Lines company Andris Linužs.

Norwegian minister steps down to keep minority government in power

In a move to avoid the collapse of the Norwegian minority government, its Justice Minister Sylvi Listhaug resigned amid a political storm she had caused by blaming an opposition party of not being harsh enough toward terrorism suspects.

Political party calls for immediate action to resolve «over-salted Riga» problem

Member of For Latvia’s Development political party’s Riga City Council faction Ansis Ansbergs urges the administration to find a quick solution to the excessive use of salt during the winter season because it has a negative impact on both human and animal health, as well as the state of buildings, cars and plant life in the capital.

MEP: fair competition should be secured for all European farmers

Sixteen members of the European Parliament from Latvia, Lithuania, Estonia and Poland submitted a joint proposal on Monday, 19 March, for a resolution regarding the future of the Common Agricultural Policy with a request to equalize the level of direct payments across all of Europe starting from 2021.

Estonia prison sentence upheld to Syrian man for causing burns to wife

In the Estonian criminal case, where a Syrian man has been convicted to 10 years in prison over causing corporal damage to his wife by setting her on fire, Estonian Supreme Court has rejected his appeal.

Olainfarm’s sales volume increased by 16% over the course of the year

Provisional consolidated data from Olainfarm for February 2018 shows that product sales volumes have reached EUR 10.69 million, which is 33% more when compared with the same period of 2017.

Minister: it is not impossible for banks to reduce number of risky clients to 5%

It is not impossible for Latvian banks to reduce the number of risky clients to 5%, says Finance Minister Dana Reizniece-Ozola.

Syrian Afrin left by 220 000 civilians, Turkish-supported rebels loot town

After seizing the northern Syrian town of Afrin from Kurdish militia, Syrian rebels supported by Turkey have been looting properties, journalists have reported. The town has been left by estimated 220 000 civilians.

Ministry orders Riga City Council to lift restrictions on questions

Latvia’s Environment Protection and Regional Development Ministry has asked Riga City Council to act and fix violations of democratic principles in the newly approved rules for deputies.

Observers of Russia election see lack of genuine choice, numerous irregularities

Official results of the Russian presidential election showed that Vladimir Putin received in a competition of eight candidates over 76% of votes and European observers have found the election has been conducted efficiently, but that there has been a lack of choice.

Olainfarm: tax law does not allow applying for tax discount in investment projects

Rushed changes to the Corporate Income Tax Law, approved as part of the expansive tax reform, do not allow businesses with prior permission from the government to apply for CIT discounts in investment projects to receive said discounts if their historic profits are not divided into dividends.

EU agrees to UK's transition period before Brexit

In a breakthrough in the Brexit talks, the UK gave its consent on Monday to an agreement with the European Union that a tangible border would not be established between British-ruled Northern Ireland and Ireland to have the bloc agree to retain most EU advantages for close to two years leaving the union.

Latvia experiences one of the most rapid export rises among EU member states in January

In January 2017, Latvia experienced one of the most rapid export increases among EU member states when compared to the same month of the previous year, according to data published by Eurostat on Monday, 19 March.

Russian citizens living in Latvia provided more support to Putin than citizens in Russia

During the presidential elections in Russia last week, support provided to President Vladimir Putin by Russian citizens living in Latvia turned out considerably larger than it was in Russia.

Every third illegally downloaded software programme – infected with a virus

Data compiled by International Data Corporation shows: every third illegally downloaded software programme is infected with malicious software. Nevertheless, 69% of consumers and 33% of businesses in Europe procure computers with software from unsafe sources.

Russian economy has grown stable along with oil prices

Higher prices of oil have allowed the Russian economy to recover despite European Union's and U.S. sanctions and in time to benefit the Russian President Vladimir Putin, who has secured his next term in office.

Number of vacant jobs in Latvia grew 17.9% in 2017

In 2017, there were 17.0 thousand job vacancies in Latvia, which was 2.6 thousand vacancies or 17.9 % more than in 2016. In public sector there were 6.1 thousand job vacancies van in private sector 10.9 thousand vacancies.

Latvian cosmetics producers exports goods worth approximately 20 million euros

Cosmetics producers in Latvia export products worth EUR 20 million every year. Volumes increase 5% every year. The main export partner states are located in Europe. Still, there has been a significant increase of export volumes to third countries – to some countries this increase was as large as 60% -70%, according to data from Latvian Cosmetic Manufacturers Association.

US Chamber of Commerce worried that Latvia’s political culture has not changed since Ridzene talks

American Chamber of Commerce in Latvia (ACCL): «We are concerned that Latvian society’s and its government’s political culture has not changed much since the publication of information detailing events associated with Ridzene talks in 2009-2011. The state capture detailed there may still be possible...

Latvia’s prime minister open for talks regarding MPC system’s liquidation

Prime Minister Māris Kučinskis is prepared to discuss the possible liquidation of the mandatory procurement system, but not for all businesses at the same time.

Air temperature in Latvia to remain mostly positive throughout the week

On Monday, 19 March, weather in Latvia will change, as a low atmospheric pressure area together with an atmospheric front will approach the country from the north. The day will be sunny for the most part, but the amount of clouds will increase as hours go by, as reported by State Environment, Geology and Meteorology Centre.

Ukraine: British diplomats expelled from Moscow could work in Kyiv

In a reaction to Russia's announcement that it would expel 23 British diplomats from Moscow as part of the UK-Russia argument over poisoning of double-agent in an English city, Ukrainian Foreign Minister has suggested to his British counterpart that the 23 diplomats could now work in Ukraine.

Most read

Most commented