Russian cash ‘not flooding Latvia’

Vilnius, Lithuania: Eurozone hopeful Latvia insisted on Thursday that the Baltic state was not in danger of becoming a new offshore haven for Russian cash amid the debt and banking crisis racking zone member Cyprus.

“There is a very, very minor inflow of Cyprus money,” Latvia’s finance minister Andris Vilks said as Cyprus banks holding hefty Russian deposits reopened after a nearly two-week lockdown.

But customers there faced unprecedented curbs to stop them draining the island’s coffers after its Eurozone bailout.

“If we’re talking about non-resident deposits [in Latvia], the money from Cyprus accounts for something around 10 or 15 per cent only,” he said, speaking at Thursday talks with his Baltic counterparts in the Lithuanian capital Vilnius.

Non-resident deposits (NRDs) in Latvian banks rose by just 0.4 per cent or 26.9 million lats (€38 million, Dh179 million) in February compared to January, according to official data released on Thursday.

Kristaps Zakulis, the head of the Latvia’s FKTK financial market regulator, echoed Vilks’ remarks. “We’re looking at the statistics [on new deposits] and we don’t see any movements right now,” he told AFP in Riga after talks with prime minister Valdis Dombrovskis and central and commercial bankers.

With the European Commission expected in June to give its assessment of Latvia’s readiness to join the Eurozone next January, Latvian officials are desperate to play down any suggestion that their banks may be vulnerable and insist their financial system complies fully with EU rules.

Both the IMF and European Commission have warned Riga that high levels of NRDs in local banks bring liquidity and money laundering risks.

But amid the crisis in Cyprus, eyes are on the Baltic state of two million people along with other offshore destinations such as Luxembourg and Switzerland as its banking sector already attracts a large number of depositors from Russia and other Commonwealth of Independent States (CIS) countries, largely due to the fact that there is a significant Russian-speaking community remaining from Latvia’s days as a Soviet republic.

According to official figures, around half of the 12 billion lats worth of deposits in Latvian banks come from non-residents, and they grew by more than 20 per cent in 2012.

According to the International Monetary Fund (IMF), up to 90 per cent of these come from Russia and other CIS states.

“In Latvia we’re talking about tens of millions [of euros in Russian deposits],” Zakulis said. “In Cyprus, we’re talking about tens of billions — it isn’t comparable.”

“There may be some Russian money on the way, but probably not all that much,” Morten Hansen of the Stockholm School of Economics in Riga told AFP.

“Russians who have had their fingers burned won’t just send their money abroad again and even if they do, there are plenty of alternatives, such as London, Luxembourg, Jersey and so on.”