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Wednesday 18.07.2018 | Name days: Rozālija, Roze
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Bloomberg: Latvia in its way to euro rejects money from Cyprus

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Author: PantherMedia/SCANPIX

Latvia is turning away money that’s fleeing Cyprus as the Baltic nation defends its banking credentials in the run-up to next year’s planned euro adoption.

Regulators in Latvia, where mainly ex-Soviet non-residents account for half of deposits, have told lenders not to ease standards to win Cypriot business. The island, which has imposed capital controls, is home to as much as $31 billion of Russian cash, Moody’s Investors Service estimates.

“Latvia won’t enter a competition for deposits fleeing Cyprus,” Prime Minister Valdis Dombrovskis said last month via Twitter. “We see the non-resident business as risky,” he said in a separate post April 11.

Non-resident deposits in Latvia, a regional banking hub since getting the Soviet Union’s first private foreign-exchange license in 1990, surged 17 percent last year to $11.4 billion, 49 percent of the country’s total, Bloomberg wrote.

Some banks see the island’s woes as a chance to capitalize on Latvia’s role in the post-communist financial world and are willing to disregard the warnings for the opportunity to expand.

Euro adoption will grant access to ECB liquidity, making Latvia more attractive and helping double non-resident deposits by 2018, Ernests Bernis, ABLV Bank AS’s chief executive officer, told the Dienas Bizness newspaper in a March 14 interview.

Cypriot banking assets surged to about 800 percent of gross domestic product after the island adopted the euro in 2008, triggering soured bets on Greek debt and a 10 billion-euro ($13 billion) bailout. That compares with 129 percent last year for Latvia, below the 369 percent EU average.

Still, it’s the second-highest total in eastern Europe behind Slovenia, which is battling to avoid a rescue after one of its banks failed an EU stress test.

European officials have questioned the risks posed by Latvia’s banks before the proposed Jan. 1, 2014, euro adoption, saying lenders shouldn’t absorb outflows from Cyprus.

European Parliament political groups had previously accused Latvia of flouting International Monetary Fund warnings over the scale of its non-resident deposits.

Latvia is familiar with non-resident deposit risks after a 2008 government rescue of Parex Banka AS, the country’s biggest deposit holder, forced it to take a 7.5 billion-euro bailout. This time, the banking regulator has written to lenders telling them not to lower standards to win business from Cyprus.

Central bank Governor Ilmars Rimsevics has written to ECB President Mario Draghi and European Commissioner Olli Rehn to assure them that Latvia, which raised liquidity requirements for banks with non-resident deposits in March, poses no danger.

Latvian money-laundering legislation “fully complies” with international standards, according to Rimsevics.

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