Profits at Desmond-backed Rietumu Banka drop 14% amid client cull

Joe Brennan: Move follows crackdown by Latvia’s financial watchdog on shell firms

Dermot Desmond first acquired a stake in Rietumu Banka in Latvia in 2005. Photograph; Dara Mac Dónaill

Dermot Desmond first acquired a stake in Rietumu Banka in Latvia in 2005. Photograph; Dara Mac Dónaill

 

Dermot Desmond-backed Rietumu Banka in Latvia saw its pre-tax profit drop 14 per cent last year to €35.2 million as it terminated relationships with thousands of “high risk” customers amid a wider regulatory clampdown on the country’s financial sector.

Rietumu Banka, in which Mr Desmond owns a 33 per cent stake, revealed early last year that it had decided to end its banking relationship with 4,000 customers – representing two-thirds of its foreign corporate customers at the time.

It followed on from Latvia’s finance sector development council agreeing to ban co-operation between banks and shell companies that had no real economic activities, and the country’s financial regulator pressing banks to prepare new strategies and long-term business plans.

Interest income at the bank fell to €46.2 million from €78.3 million, according to the company’s recently-filed full-year results. The bank’s total assets fell by 48 per cent to €1.55 billion, but this was outpaced by a 57 per cent decline in liabilities to €1.08 billion.

Authorities in Latvia have tightened supervision of the sector

Interest expenses and administrative expenses also fell sharply, cushioning the impact of the interest income slump on the lender’s profits.

Rietumu Banka said last May that its future strategy would be to work with customers that own production companies, distribution networks, retail chains, transportation and property enterprises, as well as firms that trade internationally. Mr Desmond, who first acquired a stake in the bank in 2005, is a member of the council of the lender.

“Last year has been momentous for both the financial industry of Latvia and for Rietumu Banka as one of the leading participants in the market,” said executive board chairman Rolf Fuls. “Rapid changes in the requirements and the subsequent reduction of the number of customers has naturally affected the volume of assets and deposits. The bank’s strategy has been aligned accordingly.”

“We retain the positions of the biggest private bank in Latvia and the Baltics, support a stable capital base and have the highest liquidity,” Mr Fuls said. He took over as chairman of the executive board early last year as part of a management shakeup.

Authorities in Latvia have tightened supervision of the sector after the Baltic state’s third-largest lender, ABLV Bank, was put into liquidation in February last year as the US accused it of using “institutionalised money laundering as a pillar of the bank’s business”.