Interventions and bank queues in Eastern Europe

Reuters is reporting that Poland’s central bank stepped into the spot market for the fourth time in less than three months on Wednesday to help support the zloty versus the euro, which was once again nearing levels last seen in 2009.

But the Bank’s intervention seems to be ever less detectable in terms of price trends:

Investors are generally worried about Poland’s and the wider region’s exposure to a European recession, as well as squeezes on banks and credit due to the sovereign debt crisis in the eurozone.

Develeraging by eurozone banks in Eastern Europe is already having negative effects across the region.

On Wednesday there were reports of queues forming outside Latvia’s Krājbanka (H/T @finansakrobat), as per this YouTube clip:

Bloomberg had reported on Tuesday that as much as 100m lati ($191m) may be missing from the bank.

The shortfalls come on the back of the liquidation of Lithuania’s Bankas Snoras, according to the report. Depositors were told on Tuesday that they would only be able to withdraw as much as 50 lati from ATMs starting on Wednesday for the next two to three days, depending on how the Lithuanian government proceeds with Snoras.

Lithuania’s government took over Snoras on November 16 after the central bank discovered about €300m of assets may be missing and the lender was at risk of insolvency, according to another report by Bloomberg.

How the crisis further spills out across the region could be critical.

For now, at least, analysts at Danske Bank seemed relatively optimistic that the crisis could be contained.

As they noted on Tuesday:

Last week Lithuania’s fifth largest bank, Snoras, was nationalised as Lithuanian authorities shut down the bank after it observed irregularities in the bank’s operations. This morning the Latvian authorities suspended the Latvijas Krajbanka (Latvian Savings Bank). Krajbanka is Latvia’s ninth largest bank. We think the systemic risk from these events should be relatively limited if handled properly by the authorities. That said, the collapse of especially Snoras is not good news for the Lithuanian economy as it creates uncertainty about the economic outlook.

In our view it is especially important that the nationalisation of Snoras is handled in such a way as to put minimal pressure on Lithuanian public finances that are in a precarious state as it is. A full nationalisation of Snoras in the sense of taking over all liabilities would be unwarranted. Yesterday Lithuanian Prime Minister Kubilis said that the problems at Snoras might involve “shady financial transactions” (according to the news agency Reuters) and the case was more “complicated” than initially thought. Lithuanian central bank governor Vasiliauskas at a news conference said that “we thought it was a flu, but now it seems to be a small cancer”. These comments obviously give some reason for concern.

Related links:
The Emerging Europe debt dog
– FT Alphaville
Honey, I shrunk Emerging Europe
– FT Alphaville
Austrian banks told to limit lending to east
FT
CEE banks: Austria lays down the law – FT, Beyond Brics

Copyright The Financial Times Limited 2019. All rights reserved. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.

Read next:

Read next:

FT Alpha Tweets