rolf`s griechenland blog: ‘Who, me the next Cyprus?’, Latvia edition

Freitag, 3. Mai 2013

‘Who, me the next Cyprus?’, Latvia edition

Joseph Cotterill

Joseph joined FT Alphaville way back in March 2010. He likes all the politically and legally fiddly bits of finance. He also likes credit, rates, global macro, tail risk, and all that stuff. (You should email him story ideas. He’ll take anything.)

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| May 02 12:12 | 6 comments |

Compare (Reuters, March 25):

“It was made clear to our Latvian friends that if they want to join the euro, they should not provide a haven for Russian money exiting Cyprus,” a euro zone central banker said.

Contrast (Mr Kristaps Zakulis — financial regulator, Riga, April 24):

It is not true that Russian money from Cyprus is flooding into Latvia: extensive investigation by our office has confirmed that any changes in total non-resident accounts in 2013 are consistent with historical averages. Latvia’s $10bn in total non-resident deposits is not remotely close in size to the $75bn that flowed through Cyprus: if even a small chunk of that money made it into Latvia’s economy, it would be difficult to hide. And unlike Cyprus, where the financial sector is 700 per cent of gross domestic product – or the EU average, which is 360 per cent – Latvia is more diversified at 130 per cent.

Contrast again (Moody’s special comment, May 2 – click Moody’s charts to enlarge):

We believe that the rising levels of non-residential deposits within the Latvian banking system – currently 49% of total deposits at end-2012 –are credit negative…

We consider that several trends highlight the unreliable nature of some non-resident business. In the Latvian banking system, these deposits increased by 32% between end-2010 and end-2012, compared with negative resident deposit growth of 2% and negative total loan growth of 18% over the same period. This increase has been due to the recovery of the Latvian economy following a severe recession in 2008-09 and, more importantly, the reduction in attractiveness of some rival non-resident banking systems. The most obvious of these is Cyprus…

…we expect that once capital controls are lifted in Cyprus, the potential appeal to non-domestic depositors of the Latvian banking system will result in increased inflows placing an increased burden on Latvian banks’ risk management processes and the Latvian regulator.