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Another one falls – Latvian FCMC halts PNB Bank’s operations

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Operations of PNB Bank [formerly Norvik Banka] have been halted in Latvia, as confirmed by Finance and Capital Market Commission (FCMC).

The decision made by the commission provides for the bank to completely cease providing financial services, including completion of clients’ payments as of 21:00 on Thursday, 15 August. This measure was applied to prevent outflow of the bank’s finances.

FCMC reports that operations of PNB Bank were halted and deposits made inaccessible in accordance with decisions made by European Central Bank and Single European Resolution.

«On 15 August European Central Bank as the direct supervisor of PNB Bank decided to declare this institution as one that has either ended up or will end up in financial services. The Single European Resolution’s board has made the decision to not perform regulation of PNB Bank. This means performing no measures to stabilize the bank’s operations. Considering the aforementioned and to ensure security for the bank’s deposits, FCMC council has decided at a meeting to halt financial operations in PNB Bank and has decided on inaccessibility of deposits,» the commission says.

European Central Bank has made its decision having found that the bank has not complied with regulations and after having assessed the bank’s financial situation.

«We understand this is an unexpected piece of news for the bank’s clients. However, we can prove FCMC will do all it can to come up with the most comfortable and efficient solution, as well as start paying compensations (up to EUR 100 000 to each) to all clients as soon as possible. In the coming days already 99.2% of depositors, according to initial estimates, will be able to start getting back the money they had saved up in the bank. The amounts will be fully covered using resources from the Deposit Guarantee Fund,» said FCMC head Kristīne Černaja-Mežmale.

The commission notes that FCMC council has decided on deposit inaccessibility to ensure clients are able to receive guaranteed compensation as soon as possible. FCMC will decide on the payment of compensations and its order in the coming days.

Payment of guaranteed compensation is to commence no later than the eighth day after declaration of inaccessibility of deposits. The deposit guarantee system provides each PNB Bank’s client with a compensation worth up to EUR 100 000.

The guaranteed amount will be paid to both private and legal persons for all kinds of deposits in any currency.

In March 2019 European Central Bank decided to take PNB Bank under its direct monitoring. This decision was made following FCMC’s request in relation to the bank’s international litigation against the Latvian state.

It is also reported that the bank’s capital sufficiency index on 31 December 2018 was 12.48%, whereas the requested minimum is 14%.

The bank’s 2018 audited account mentions that the bank had submitted to FCMC its bank/group capital strengthening plan last year. This plan provided several development scenarios, including the sale of SIA Winergy, the bank’s open-end bonds possible to convert into first level capital, bonds, sale of assets not associated with banking services, sale of pension plans, and conversion of subordinated deposits and attraction of new investors.

«The bank continues working on attracting a new investor in order to increase shares capital, which is the basic level of Tier 1 capital and forms the foundation for expansion of business activities. Additionally, first level capital offers the way to acquire additional profit,» the account mentions.

The account also mentions that the composition of the bank’s shareholder changed considerably on 28 June 2019. «The bank’s management is positive about this change. The bank/group strategy, which will be ready in the near future, will allow the bank to continue its operations and will be aimed at long-term strategic development. It is good that thanks to additional capital deposit from new shareholders will allow the bank/group to fulfil the regulator’s capital sufficiency requirements. Additionally, additional capital deposits will help increase profitability of the bank/group,» the account mentions.

At the end of June 2019, the bank’s representatives reported US and European investors acquiring 60% of PNB Bank’s shares. Names of new shareholders were not disclosed. LTV had reported that among the new owners of the bank is Middle East oil tycoon and billionaire Roger Tamraz.

The bank’s representatives also report that the new owners of PNB Bank are not interested in continuing the bank’s ongoing litigation against the Latvian state, FCMC and European Central Bank.

The International Centre for Settlement of Investment Disputes (ICSID) is currently viewing the 2017 claim from PNB Bank and its shareholder Grigorijs Guselnikovs and his family member against the Latvian state over «unfair, arbitrary, improperly motivated and unjustified approach used against the bank by Latvian institutions».

According to information from LETA on the ongoing complaints, the bank and its shareholders want to enforce losses from the Latvian state caused as a result of «illegal operations or negligence». The complaint mentions that losses may reach hundreds of million euros. No specific amounts are reported.

The claim is justified with the fact that «illegal activities of Latvian institutions, officials and representatives and negligence towards Norvik Bank and its shareholders has caused losses for investments in Latvia’s banking and energy sectors», which is a breach of an inter-governmental agreement between the United Kingdom and Latvia on promotion and security of investments.

In the claim, the bank’s shareholders stress that since December 2015 the bank has experienced «unreasonable, unjustified and continuous pressure» from Latvian state institutions and officials, including FCMC. The commission is accused of increasing capital compliance rate multiple times, «making requirements unreasonable and higher than what is generally requested of Latvian banking sector and 4th directive of European Union Capital requirements», «unreasonable and damaging measures against the bank’s asset value reduction» and multiple audits, as well as application of major restrictions for the bank’s operations.

Norvik Bank’s shareholders against ICSID mentions that such regulations are preserved and/or enhanced, considering recommendations provided by «very high level, high-ranking Latvian official with ties to the financial sector and influence over FCMC».

It was previously reported by the media that the official in question is the governor of the Bank of Latvia Ilmārs Rimšēvičs. The situations described in the claim only vaguely describe this high-ranking official without mentioning any names. The bank’s board chairman Oliver Bramwell had previously informed AP news agency that the official mentioned in the claim is Rimšēvičs.

Rimšēvičs’ name is mentioned in only one episode, which took place in 24 April 2017, when Rimšēvičs had ordered Norvik Bank’s board chairman Bramwell to halt talks on possible changes in regards to transactions using Norvik Bank Russia shares in relation to shares of Sberbank in Ukraine.

«In violation of his official authority, the bank’s governor requested from Guselnikov commitment to refrain from investing Sberbank Ukraine, which is inexcusable. Additionally, Rimšēvičs has no authority over Guselnikov,» the claim mentions. It mentions that the high-ranking official had directly and using mediators had requested bribes from Guselnikov, who refused to pay.

On 30 July, Bramwell stepped down from his post.

In a statement to the press released at the end of July, the bank’s representatives reported that PNB Bank has nearly 500 employees and approximately 100 000 clients, two –thirds of which are seniors.

On the other hand, the Finance Industry Association’s data shows that at the end of 2018 PNB Bank had 68 974, including 64 691 private persons.

The latest data from the organization shows that as of 31 March 2019 PNB Bank had attracted EUR 494 756 in deposits, including EUR 264 757 in private persons’ deposits and EUR 228.976 million in company deposits.

PNB Bank’s assets were worth EUR 569.53 million as of 31 December 2018, which is 27.8% or EUR 219.563 million less when compared to the end of 2017. Asset-wise PNB Bank was Latvia’s seventh largest bank at the end of 2018.


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