Rietumu Banka AS, a Latvian lender that services clients in Russia and Ukraine, overtook SEB AB’s local unit to become the country’s third-largest, potentially putting it in line for European Central Bank supervision.
The Riga-based bank’s assets swelled 22.7 percent in the first quarter to 3.8 billion euros ($4.3 billion), placing it behind only ABLV Bank AS and Swedbank AS’s Latvian unit, data from the Association of Latvian Commercial Banks show.
Latvian banks have served as magnets for deposits from the former Soviet republics since 1991 and as a payment center for businesses importing goods into Russia. Rietumu is a “bridge between East and West,” and has won industry awards for its “private banking and high money management for Russian clients,” the bank said in its 2014 annual report.
“I think the numbers demonstrate clearly a positive trend resulting from local bankers building platforms that add value to its target market, primarily Russia and Ukraine to date,” William Schaub, director of the executive MBA program at Riga Business School, said by e-mail.
Rietumu’s size may qualify it for direct ECB oversight. At present, the ECB supervises ABLV and SEB because they are among the three largest credit institutions in the country, as well as Swedbank’s unit, whose total assets are equivalent to more than 20 percent of Latvian gross domestic product.
“Theoretically this possibility exits, and the ECB in cooperation with national regulators carries out an annual evaluation while analyzing the situation in all member states,” said Marija Makarevica, a spokeswoman for the Latvian bank regulator. “In Latvia’s case there could be a situation where for some time the ECB supervises the four largest banks by assets, because the bank with the lowest level of assets will be excluded from the supervision only after three years.”
Vulnerable to Volatility
Rietumu and ABLV are non-resident banks that mostly cater to clients from the former Soviet republics. Non-resident deposits, which are mostly held in U.S. dollars, grew 24.3 percent last year in the Latvian banking system, according to the regulator. Correcting for the rise in the value of the dollar, non-resident deposits grew 14.4 percent, it said.
Before Latvia adopted the euro last year, the International Monetary Fund and Moody’s Investors Service both said non-resident deposits were vulnerable to volatility, though officials in Riga played down the risk.
Rietumu spokeswoman Eleonora Gailisha referred all questions on supervision to the bank regulator.