Latvia's prime minister on Friday welcomed a decision by European authorities to shut down the Baltic state’s bank PNB Banka after they determined that nothing could prevent it from failing.
“The whole banking business in Latvia is becoming more stable and secure, and this particular decision shows that the European Central Bank (ECB)’s oversight is strong and effective,” Prime Minister Krisjanis Karins told the LETA news agency.
The eurozone member has been scrambling to reform its banking sector after a string of high profile corruption and money laundering allegations in recent years.
PNB Banka itself was fined for money laundering by Latvia’s financial regulator in 2017 after a joint probe with the US’ Federal Bureau of Investigation (FBI) found it had been used to circumvent international sanctions against North Korea.
The bank, Latvia’s sixth largest with €550 million ($610 million) in assets, is being shut down for undercapitalisation.
PNB Banka “was failing or likely to fail” according to a statement by the ECB late on Thursday.
The bank has been directly supervised by the ECB since May, and central bank officials decided its amount of available capital had deteriorated “to the point that the bank’s assets were less than its liabilities”.
The ECB then informed Europe’s Single Resolution Board, which in turn determined “that resolution action is not necessary,” and PNB Banka should be liquidated, an SRB statement said.
“The Latvian bank will be wound up under national law,” SRB added.
The SRB was created in 2016 to deal with failing eurozone banks by spreading the cost of dismantling them across the zone’s entire banking sector.
Several ailing eurozone banks have thus disappeared, including the sixth biggest Spanish bank, Banco Popular, which was acquired in 2017 by rival Santander.
Latvian Finance Minister Janis Reirs said Friday that PBN owes its clients 300 million euros.
“The government-run Deposit Guarantee Fund will step in to help the clients recover their money. Up to €100,000 for each client,” he told Latvian public broadcaster LTV.
Certain clients have more money tied up in the bank, including the second city of Daugavpils, whose mayor Andrejs Elksnins told LETA that city taxpayers could lose up to €1.3 million as a result.
The bank, which until last year was known as Norvik Banka, has been owned by Russian businessman Grigoriy Guselnikov since 2013.