Latvia has to take strong measures to restore reputation of financial system - IMF

RIGA - Latvia has to take strong measures to restore the reputation of its financial system, Iva Petrova, head of the International Monetary Fund's mission to Latvia, told reporters on Monday.

The IMF believes that Latvia's financial system has to increase support for investments. Regardless of favorable macroeconomic conditions, lending volumes are still growing moderately, the IMF experts have concluded.

The fund's representatives point out that more loans will be needed in the medium and long term for investments and increasing Latvia's capital and production. The IMF also emphasizes that reforms to insolvency administration and licensing of insolvency administrators will help improve the recovery of creditors' funds, while incentives for people to reveal their actual incomes and assets will help reduce credit risks.

Overall, Latvia's banking system is stable, liquid and well capitalized, however, strong measures are necessary to restore the system's reputation following the halt to ABLV Bank's operations, the IMF points out. Effective implementation of anti money laundering and combating the financing of terrorism (AML/CFT) recommendations has to focus on reducing the proportion of questionable foreign deposits and the risks they pose to Latvia's financial system. In the meantime, harmonization of banking regulations on the European Union level is necessary to ensure availability of more effective tools for liquidation of banks whose financial situation is very poor or could worsen significantly in the near future.

The IMF also reminds that close supervision of changes in the operations of those banks that serve third-country clients and assessment of the banks' owners and managers will help improve their business strategies and management, and, most importantly, mitigate risks to the financial sector's stability.

The IMF mission to Latvia arrived in Riga on June 20.