Dermot Desmond-backed Rietumu Bank in Latvia has said that its balance sheet will be able to absorb even a “worst case” scenario stemming from the Russia-Ukraine war, after stress testing its €200 million-plus of loans exposure to both countries and Moscow’s ally, Belarus.
Rietumu, in which the Irish billionaire holds a 33.1 per cent stake and a position on the group’s council, had €142 million of direct and €39 million of indirect exposure to Russia as of the end of 2021, the company said in its latest annual report. Its exposure to Belarus stood at €37 million, and Ukraine at €4 million. Some 96 per cent of the total is made up of customer loans.
The bank has no significant liquidity exposure to any of the three countries, it said in a note in the report, which highlighted the Ukraine war as an important event after the end of its financial year. Latvia shares borders with both Russia and Belarus.
“To assess the potential losses from exposure in Russia, Belarus and Ukraine, the bank has performed an in-depth risk assessment and geopolitical stress testing,” the bank said, noting that it had €131 million of surplus capital at the end of December, over and above its regulatory requirement.
Rietumu said that a worst-case scenario would drive its so-called capital adequacy ratio – a key measure of balance sheet reserves to absorb a shock loss – down to 15.99 per cent of a measure of risk assets, which remained in excess of its regulatory requirement of 14.25 per cent.
The bank, whose net profit almost tripled last year to €27 million, said it had stopped commercial lending in Russia and Belarus at the beginning of 2022 amid the uncertain environment in the region, according to the report. It also decided to run down its Belarussian leasing portfolio and focused on reducing its overall “concentration risks of large lending projects”.
Rietumu had €1.55 billion of assets, including €595 million of loans, as of the end of last year.
Rietumu has also placed all bank accounts of Russian and Belarussian citizens and entities on “manual control for incoming payments” to comply with recent restrictions that EU banks must not accept deposits of more than €100,000 from parties in both countries.
As of the end of March, when the accounts were signed off on, the bank had identified €3 million of deposits and balances due from banks and €7 million of customer account balances that were linked to parties affected by western sanctions. The bank has frozen accounts and funds belonging to sanctioned entities, as required by EU and US regulations, it said.
Rietumu was fined €5.85 million last June by Latvia’s banking regulator for failure to vet clients and monitor them for money laundering and terrorist financing. The fine resulted from inspections in 2019 and 2020.
Last year also saw an appeals court in Paris reduce to €20 million a previous €80 million fine levied by a French court in 2017 against the bank for allegedly enabling clients of a company called France Offshore to evade taxes and launder money through companies in tax havens. Rietumu continues to insist that it was not complicit.