February 23, 2018 / 2:43 PM / a year ago

INTERVIEW-Latvia woudn't save ABLV but ready to handle ripple effects -govt

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By John O’Donnell and Gederts Gelzis

RIGA, Feb 23 (Reuters) - Latvia is ready to mitigate any ripple effects from ABLV Bank’s difficulties but would not save the lender if it failed, the country’s finance minister told Reuters on Friday, adding that she did not presently see any sign of broader instability.

The Baltic country, 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.

“Knowing that, potentially, there might be some domino effects on (other) banks ... we monitor the situation on an hourly basis,” finance minister Dana Reizniece-Ozola said.

“It is about the ability to control the situation,” she added. “We have all the instruments in place to swiftly react should it be necessary. At this point, it is stable and no further actions are needed.”

U.S authorities have accused ABLV, Latvia’s third-biggest lender, of engaging in large-scale money laundering, and the European Central Bank, its supervisor, froze all payments this week, fearing it would collapse due to an exodus of deposits.

ABLV denies all the allegations and has requested emergency central bank funding. The ECB gave the bank until Friday to detail a survival plan or face the risk of closure.

“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 minister said other banks at risk in Latvia were those, like ABLV, that specialise in accepting foreign deposits. She said she had a list of more than a dozen lenders that fitted this description and could therefore be affected in some way.

Reizniece-Ozola also said she wanted to see the amount of foreign deposits in Latvian banks, which come from countries including Russia and Ukraine, shrink in the next few years.

The crisis at ABLV comes alongside a separate police investigation into allegations that Latvia’s central bank chief Ilmars Rimsevics solicited a bribe. He denies the claims.

The finance minister reiterated her call for Rimsevics, a member of the ECB’s Governing Council, which sets interest rates for the euro zone, to step down as central bank governor.

The episode is Latvia’s biggest financial difficulty in a decade. The country was among those hardest-hit by the global financial crisis, falling into a deep recession as the government sought an international bailout, nationalized Parex Bank and made spending cuts amid a wave of emigration. ($1 = 0.8134 euros) (Editing by Balazs Koranyi and Catherine Evans)

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