Latvian banks agetting rid of high-risk shell corporations quickly – their share in bank deposits has shrunk to 0.5 percent

  • 2018-07-06
  • FCMC/TBT Staff

RIGA - The Financial and Capital Market Commission (hereinafter – the FCMC) collects on a regular basis data on the performance of the Latvian banking sector as regards the cleansing the bank customer base itself of so-called shell corporations bearing at least two characteristics of shell corporations under regulatory requirements. Since March – April the number of such corporations has become extremely scarce, and at present the shell corporations with which business relations are to be terminated account for about 0.5 percent of total customer base.

To ensure the management of required changes in the Latvian financial sector, amendments to the Law on the Prevention of Money Laundering and Terrorism Financing (hereinafter – the AML Law) came into effect on 9 May 2018, imposing on market participants in Latvia an obligation within 60 days to cease business relation with the companies bearing at least two characteristics of shell corporations – lack of proof of real economic business activity (of no economic value) and lack of requirement to submit annual financial statements. The above amendments took effect on 9 May 2018; consequently, their 60-day deadline is 7 July 2018.

FCMC Chairman Pēters Putniņš: "At this moment we can say with confidence that the Latvian banks have addressed this task with a great sense of responsibility, the process runs dynamically and the deadline of it will be met. In line with the purpose of law the situation has been improving day by day – risky money along with these shell corporations are leaving the Latvian financial sector. It should be noted that the banks, as a sign of goodwill, had already earlier started self-cleaning process related to the assessment of shell corporations. Today, the number of deposits by those shell companies with whom business is not prohibited, has also declined substantially; consequently, the total amount of shell companies' deposits in Latvian banks has shrunk by more than 50 percent over this year."

Most of the Latvian banks have already completely discontinued business with companies bearing two of above characteristics. The process of changes in the financial sector, commenced two years ago, giving up high-risk clients and their deposits (not only shell corporations), has been still continuing. The Latvian banks are changing their client structure by in-depth analysis of their client risk profile, and getting rid of high-risk clients, where necessary. At the end of June, the share of foreign client deposits in the Latvian banks was 28% (excluding ABLV Bank AS – 22% percent), this is an unusual state of affairs for the Latvian financial sector.

The geographical structure of deposits demonstrates that domestic deposits are dominating in Latvia with 71 percent of the deposit portfolio, European Union (EU) deposits account for 12 percent, other countries' deposits – 11 percent, whereas CIS countries' deposits have shrunk to 6 percent.

In total, the outflow of foreign deposits over past two years has exceeded 5 billion euro. According to the FCMC's estimates by the end of this year the foreign customer deposits are likely to make up around 3.5 billion euro, or 20 percent of total deposits in Latvian banks.