Don't risk the whole enchilada

  • 1998-09-24
  • Sandra L. Medearis
RIGA - No putting all the eggs in one not-so-tightly-woven basket, the Bank of Latvia is telling commercial banks.

The central bank has restricted the amount that Latvian credit institutions can invest in one Zone B country to 25 percent of the institution's equity capital. Zone B countries are those which are not members of the 29-country Organization for Economic Cooperation and Development (OECD). Besides Latvia, Estonia and Lithuania, other Zone B countries are generally those in the former Soviet bloc and in Asia and Latin America, including Russia, Brazil, Belarus, Kazakhstan, Bulgaria, Romania and Slovakia, which is in the process of accession. Poland is a member.

Bank of Latvia has also ruled that one bank's combined investments in Zone B countries cannot exceed an amount equal to twice the investing bank's equity capital. Equity capital is the nominal value, or face value, of the issued shares in a company.

Diversifying the investments will encourage more investment at home in Latvia, Unibanka Vice President Viesturs Neimanis told the Baltic News Service on Sept. 18., and hedge risk and profit of banks by investment in Zone A countries.

President Arnolds Laksa of the savings bank Latvijas Krajbanka said that banks need time to restructure investments to conform with Bank of Latvia's directive. Meanwhile, for cautious banks, potential risks are covered by currency risk insurance, he said.

The OECD describes itself as a clearing house for member countries' discussions of experiences, ideas, and problem solutions. Member countries embrace the principles of market economy and pluralistic democracy.