Here’s an interesting story from Reuters on Latvian banks (our emphasis):
LONDON, July 23 (Reuters) – Banks in Latvia have fallen short of the central bank’s reserve requirements since late June, with the daily shortfall hitting as much as 234 million lats ($473.2 million), central bank data shows.
The problem underscores the depth of the funding crisis faced by the Baltic state which is desperately trying to secure cash pledged under a 7.5-billion euro joint European Union and International Monetary Fund (IMF) deal to prop up its economy and pegged currency.
Central bank data posted on Reuters shows banks falling short of the 715.9 million lat reserve requirement for the one-month period between June 24 and July 23, with a gap of 200 million lats on Wednesday. The daily average shortfall for the month was some 9 million lats, as of July 22.
Under regulatory changes made by the central bank this month, financial institutions failing to meet the minimum reserve requirements face increased fines from Oct. 24. But Latvian central bank spokesman Martins Gravitis declined to identify the source of the latest shortfall. “The law does not permit us to comment on individual cases and performances,” he said in an emailed statement.
But this is hardly surprising; FT Alphaville wrote earlier this week that the country’s recently nationalised Parex Banka was showing a disturbing rate of customer deposit withdrawals in the period. What’s more, its projected capital adequacy ratio on the completion of a major equity restructuring and receipt of an EBRD loan, has also been doing some worrying high-scale flip-flopping, according to company releases like these and these. This suggests major disturbances in the period.
On the issue of Parex, there was more on Thursday too. As Reuters reported:
RIGA, July 23 (Reuters) – Latvian bank Parex on Thursday said it had signed a deal for a 22 million euro subordinated loan from the European Bank of Reconstruction and Development (EBRD), which also plans to take a stake in the troubled bank.
Rescuing Parex after a run on deposits was one of the reasons Latvia took a 7.5 billion euro bailout last year, led by the International Monetary Fund. Following the increase of equity capital, the EBRD will purchase 25 percent and one stake in the bank, and the deal should be closed in August, Parex said in a statement.
“EBRD’s participation in the recapitalization of Parex bank is an indication of our confidence in the recovery process of both the bank and the Latvian economy,” Peter Reiniger, EBRD’s business group director for Central Europe and Western Balkans, said.
He said the bank was looking forward to complete the investment, which would become the bank’s largest transaction in Latvia. The bank said earlier it had planned to purchase a 25 percent stake in Parex for 59.5 million lats. Latvia’s government, which rescued Parex to prevent it from collapsing last year, said it would raise bank’s capital by 227 million lats to make sure it meets a capital adequacy ratio of 12 percent.
Related links:
Trouble at Parex – FT Alphaville
Latvia jitters creeping back – FT Alphaville