"To ensure the stability of Latvia’s financial sector and protecting the interests of bank’s customers and creditors, the Board of the Financial and Capital Market Commission decided to suspend the provision of financial services at Baltic International Bank SE during the extraordinary meeting of 12 December," the regulator said.
"The FKTK has recognized Baltic International Bank SE as failing or likely to fail and decided not to take resolution action of Baltic International Bank SE, which means to take no actions in order to stabilise bank activities," the regulator added.
The decision provides that as from 12.12.2022 at 18.00 the bank has to suspend provision of services in full, including the execution of customer transactions.
Baltic International Bank SE payment cards, internet banking and payments have all been suspended with immediate effect.
"The decision is taken to prevent a bank run and protect the interests of bank’s customers and creditors," the FKTK said.
Explaining its move the regulator said:
"The FKTK has based its decision to recognise Baltic International Bank SE as failing or likely to fail on the grounds that the bank has not been able to ensure the implementation of a viable business strategy over a sustained period. The current business strategy does not conform to the bank’s capacity and is not feasible, therefore the bank has been continuously failing to provide a profitable business model. The bank also has serious internal governance deficiencies, including the area of the prevention of money laundering and terrorism and proliferation financing."
"Despite the efforts of the FKTK to make improvements in these areas, the bank has not ensured compliance of its activities with the regulatory requirements governing the activities of credit institutions, as well as continues the current trend: the bank operates at a loss, is unable to restore profitability, fails to ensure an adequate internal control system and a stable future vision."
In accordance with the Deposit Guarantee Law disbursement of compensation of up to 100 000 euro is guaranteed for any customer. Initial estimates show that 1,012 bank customers will receive their deposits back in full. According to FKTK, on December 12 Baltic International Bank SE had a total of 1,580 customers, of which 280 customers have a bank account balance of zero.
In a further dramatic development, LTV reported that tactical police units had raided the bank's Rīga office and other locations. Pictures showed a human-sized hole apparently blasted through the entrance with several police vehicles parked outside.
Founded in May 1993, BIB was the first bank to offer private banking to wealthy customers in Latvia following the restoration of independence, in the process setting the model for the boutique banks that would grow into a huge financial sector – a sector that was initially championed as a success story but would ultimately lead to Latvia gaining an unwelcome reputation as a center combining money laundering, shell companies and offshore tax schemes.
Following the collapse of ABLV bank in 2018, a concerted and largely successful effort has been made to clean up the financial sector and rid Latvia of banks reliant upon non-resident cash flows from the east. However, given FKTK's words about "serious internal governance deficiencies" with regard to money laundering and terrorist financing, questions will inevitably arise about how thorough the reforms and clean-up process have been. As will be seen below, there is nothing new in identifying such internal deficiencies, despite assurances they will be tackled every time a penalty is imposed.
Baltic International Bank is a member of the Finance Latvia Association, the leading banking industry lobbying group in the country. According to their data, at the end of 2021 BIB had 784 corporate customers and 703 retail customers and was the tenth-largest bank in the country by assets. It operates just one branch, an opulent affair in Rīga's Old Town.
59% of the shares of Baltic International Bank are owned by the founding Belokon family, namely brothers Valeri Belokon (pictured above, 38%) and Vilori Belokon (21%). 9.9% of shares are owned by UAE investor Adel Abdulaziz Hamad Alshirawi and 8.26% are held by Sheikh Hamad Bin Khalifa Bin Mohammed al Nahyan of Abu Dhabi. Another 8.26% is owned by private equity company Migom Investments, according to the bank's website. In a September financial statement, BIB said that of the bank’s 100 shareholders, 31 were legal entities and 69 were individuals.
Also according to BIB, back in March the Belokons agreed a share sale transaction with Sheikh Hamad Bin Khalifa Bin Mohammed al Nahyan, as a result of which he was set to become the bank's largest shareholder, subject to approval by the European Central Bank and the Financial and Capital Market Commission.
According to its most recent financial statement, Baltic International Bank SE closed Q3 2022 with assets of EUR 195.29 million and a total capital ratio (TCR) of 8.39%.
Back in 2019, FKTK fined BIB 1.6 million euros – also for "deficiencies in the Bank’s internal control system" – a phrase strikingly similar to the one in the statement effectively shutting the bank down three years later.
Before that, in 2016, the FKTK had already imposed another million-euro fine on the bank for infringements of anti-money laundering requirements.
Information hotlines have been set up for the bank's customers. For thse calling from overseas, Latvia's international code is +371
- for payment of guaranteed benefits: 67022801
- for transactions with financial instruments: 67022807
- for other questions: 67022819