Russian Capital Continues to Enter the Latvian Banking Market

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Feb. 23 – Russian entrepreneur Igor Kim has become the sole shareholder of Latvian LTB Bank, the Latvian lender has said in a press release. The Financial and Capital Market Commission of the Republic of Latvia on January 26, 2012 issued permission to Igor Kim to hold a qualifying holding in the Bank.

Relevant changes in LTB Bank’s shareholder register were made on February 9, 2012.

In November 2011, Kim sold his equity stake in MDM Bank, a top 30 lender in Russia. It was also wired that MDM Bank shareholders and management made a decision to sell 100 percent of LTB Bank to Kim.

“In view of the area of business of the new shareholder and his network of international banks, we’ll help our Latvian resident customers to find partners for cooperation and instruments to expand exports in the CIS and Europe,” the LTB Bank press release said.

Apart from LTB Bank, Igor Kim holds equity stakes in Barclays Bank (from UK-registered group Barclays), Bank Vostochny, and Pervoye Kollektorskoye Buro.

LTB Bank, one of the oldest banks in the Republic of Latvia, was established on December 6, 1991. The lender’s assets at the end of 2010 amounted to LVL445,185 thousands – which represents an 67 percent increase compared to 2009.

Last year, a number of transactions have taken place in Latvia, resulting in Russian capital increasing its influence in the country’s banking market.

For instance, U.S. General Electric Capital Bank GE Money Bank was bought by one of Russia’s largest financial groups Otkritie; a new bank – Rigensis Bank – was established by the Russian banker Igor Tsiplakov from St Petersburg; Latvijas Krājbanka, owned by Snoras and the Konvers Grup of the Russian billionaire Vladimir Antonov, opened a branch in Rīga last year, as did the Eesti Krediidipank, a subsidiary of Bank Moskvy. Bank Moskvy also owns another local lender – the Latvian Business Bank.

Local experts forecast that Russia’s capital entry into the Latvian banking market will continue going forward, and they found it as positive trend for the country.

At the same time, some market players still remember 2005, when the banking sector was shaken by the unflattering statements of the U.S. Treasury’s Financial Crimes Enforcement Network, claiming that large-scale laundering was carried out in Latvia with money from Russia.

At that time, restrictions were imposed on two banks – VEF Bank was set for liquidation while Multibanka changed owners.

Since the collapse of the Soviet Union, Latvia has become the financial center of the Baltic States and houses 32 banks, 10 of them branches of foreign banks. Foreign deposits represented 41 percent of all deposits in the banking system in mid-2011, according to the Latvian Association of Commercial Banks.

“We are closer than Switzerland,” is how one of the country’s larger commercial banks put it in a 1990’s slogan.

The critical year of 1998, when a financial crisis in Russia took a toll on Latvia, the country’s banking system was rescued by the European Bank for Reconstruction and Development. That particular year happened to be the moment when foreign capital began to flow into Latvia’s banks. The largest banks from Scandinavia entered the market and became key players – SEB and Swedbank from Sweden, Norwegian DnB ORD, Finnish Nordea, and Norvik from Iceland.

Ten years later, in 2008, the global financial woes hit the largest local independently-owned entity, Parex Bank, which at that time held a market share of 18 percent of deposits and 12 percent of loans in the Latvian market, and had €4.9 billion in assets.

Following the collapse of Parex Bank, Scandinavian banks reduced their operations in Latvia.
But the banking sector never experienced a vacuum and Russian capital has appeared to be flowing into Latvia since then.

The Private Bank Association (previously known as Latvian-American Financial Forum), a domestic banking system watch-dog put in place after money laundering was reported in 2005, expresses confidence that “everything is alright with the arrival of Russia’s capital.”

“The association is exploring every avenue before any transactions is taking place, so I have complete confidence that things are in order,” Aivis Ronis, head of the Private Bank Association, assured the local press.