Latvia: Turmoil in the financial system

5 min

Latvia’s banking system was hit by new scandals over the past week. First, central bank governor Rimsevics was arrested over the weekend by the Latvian anti-corruption agency on allegations of seeking a bribe. Rimsevics was released on bail on Monday but was suspended as the investigation is pending (he has refused to resign, denying any wrongdoing). Second, on Monday the Latvian banking supervisory authority imposed a moratorium on ABLV Bank, Latvia’s third largest lender, following a request by the ECB. ABLV has faced liquidity shortages since the U.S. took action against it earlier this month over alleged money laundering and activities linked to North Korea's weapons program. So far, the two events appear to be unrelated. But their occurrence within a very short period is another blow to the reputation of the Latvian banking system. Yet, overall financial soundness indicators of the banking sector remain solid; and those (mainly Nordic-owned) banks that predominantly serve domestic clients are healthy. Hence we do not expect any significant impact of the scandals on the overall economy, for now.