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Banks need to change their business models, says regulator

The head of Latvia's financial regulator, the Financial and Capital Markets Commission (FKTK) told Latvian Radio February 16 that some of the country's banks needed to change their business models.

From the profitability point of view Latvian banks are currently in a good position, but nevertheless they need to think about changing some of the ways they have previously done business, FKTK chief Peters Putnins said, particularly in relation to how they do business with "non-resident" clients whose sources of income and transactions require stringent tests.

In the past there have been suspicions that certain parts of Latvia's banking sector have been used to launder large sums of money, but tighter controls mean that is no longer as simple as it was and Putnins said FKTK was keeping a close eye on the situation.

"We have already started the process, called the banking strategy and business plan review," said Putnins, adding that FKTK would not "stand on the sidelines" but instead intended to "set the tone" for reforms in the banking sector.

Last year, non-resident deposits in Latvia decreased significantly, with Putnins estimating the figure could be around 10%.

According to figures quoted by FKTK elsewhere, last year the total amount of deposits in banks decreased by 1.9 billion euros, but domestic customer deposits increased by 1.4 billion or 12.6%.

The fact many banks are currently reporting healthy profits was no reason for them to become complacent, the regulator insisted, suggesting instead that both the banks and the regulator could "use these years to put things in order where we still have a lot of work to do." 

In just over a year at the helm of FKTK, Putnins has handed out fines to banks totalling nearly €6m, which is almost double the amount of the preceding 4 years. Most of those fines were related to deficiencies in banks' compliance with anti-money laundering regulations in previous years.

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