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Latvia Not Expecting Rise in Deposits After Cyprus, Premier Says

March 26 (Bloomberg) -- Latvian Prime Minister Valdis Dombrovskis said the Baltic country won’t see a surge in non-resident deposits due to the crisis in Cyprus.

The island nation struck a deal yesterday as part of a 10 billion-euro ($12.9 billion) loan from the European Union, the International Monetary Fund and the European Central Bank that will mean losses on uninsured deposits and the closing of the country’s second-biggest bank.

Russian companies and individuals have $31 billion of wealth in Cyprus, Moody’s Investors Service estimated, where total banking sector assets were seven times the country’s 18 billion-euro economy in January, data from the ECB and the EU’s statistics office shows. Non-resident deposits in Latvian banks rose 16.8 percent in the fourth quarter from a year earlier to 6.1 billion lati ($11.2 billion), almost half of all system deposits, according to the Latvian bank regulator.

“For now, we don’t forecast a meaningful rise in flows of non-resident money in the context of the Cyprus situation,” Dombrovskis said in a news conference in Riga today.

The ECB contacted Latvia to warn against taking in large deposits exiting Cyprus, saying it could effect the nation’s euro bid for next year, Reuters reported yesterday, citing an unnamed euro-area central banker.

“I know that the ECB has been in touch about the non-resident deposits in the Latvian banking system and the Latvian side has given its assurances,” Martins Gravitis, a spokesman at the Latvian central bank, said in an e-mail today. Gravitis said he couldn’t comment on the report that this could effect the country’s euro bid.

The Latvian bank regulator sent a letter to the country’s commercial banks asking them to focus on evaluating the quality of clients and financial flows instead of the quantity, spokeswoman Laima Auza said in an e-mail. Cyprus saw deposit outflows of about 1.7 billion euros in January, while Latvian non-resident deposits only grew by 130 million euros in that month, Auza said in the e-mail.

To contact the reporter on this story: Aaron Eglitis in Riga at aeglitis@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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