Latvia`s central bank provided an emergency loan to troubled lender ABLV on Friday, offering it a potential lifeline as a European Central Bank deadline approaches for the bank to present a credible survival plan.
Latvia, a member of the euro zone that borders Russia, has come under increasing scrutiny recently over allegations that it is a conduit for illicit financial activities involving Russia, Ukraine and even North Korea.
ABLV, the nation`s third-biggest lender, has in effect been shut since the beginning of the week, when the ECB ordered a payment moratorium to prevent an exodus of deposits and the lender`s collapse.
The Bank of Latvia said it has agreed to lend ABLV 297.2 million euros ($366 million) in emergency liquidity assistance, which includes a 97.5 million euro loan it provided earlier this week. This relatively expensive form of funding may help ABLV stabilise its operations and eventually reopen.
ABLV`s troubles began last week when U.S. authorities accused it of engaging in large-scale money laundering for Russian clients, which the bank denies. Fearing U.S. sanctions, depositors have withdrawn around 600 million euros from the bank.
The ECB has given the bank until Friday to provide it with details of how it plans to survive if the payment moratorium is lifted.
ABLV said it has plenty of collateral to fund its operations and some of its clients have committed to maintaining their deposits. But its deputy chief executive admitted that winding down the bank was a possible outcome.
Latvian Finance Minister Dana Reizniece-Ozola said the state would not step in to rescue ABLV if it were about to collapse as it is not critical to the country`s economy.
"ABLV is not regarded as a systemic bank, which means the government would not rescue it because its exposure to the Latvian economy is low," Reizniece-Ozola said. "There is some systemic importance (but) ... it is not crucial or critical."
The bank, like many others in Latvia, has sizable deposits from foreign clients, many from Russia and Ukraine. Indeed, around 40 percent of all bank deposits in Latvia are from non-residents, official data shows.
($1 = 0.8129 euros)
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