Cablegate: Deposits in Latvian Banks Fall in October

VZCZCXRO2795
RR RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHRA #0705 3221403
ZNR UUUUU ZZH
R 171403Z NOV 08
FM AMEMBASSY RIGA
TO RUEHC/SECSTATE WASHDC 5388
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS RIGA 000705

SIPDIS

E.O. 12958: N/A
TAGS: EFIN ECON LG
SUBJECT: DEPOSITS IN LATVIAN BANKS FALL IN OCTOBER

Ref: Riga 690

1. In a November 14th flash report on the performance of the Latvian
banking sector in September/October, the Latvian financial
supervisory authority, the Financial and Capital Markets Commission
(FCMC), stated that deposits in October decreased by a considerable
4.6% or LVL 461 million (USD 819 million). Non-resident deposits
decreased more than resident deposits, 5.7% and 3.6% respectively.
The FCMC attributed the larger drop in non-resident deposits to the
fact that most non-resident depositors are businesses and many of
them would be feeling the effects of the global economic slowdown.
The FCMC also reports that bank profits in the first 10 months of
the year decreased by 28%. Liquidity in September fell, but still
ranged between 37% - 57%. The capital adequacy ratio of Latvian
banks at the end of September was 12.3%.

2. Comment: These numbers help explain some of what led to the
government bailout of Parex Bank (reftel) and it will be important
to see whether the November numbers show that the outflow has
slowed. The report does not indicate whether the withdrawals were
mainly from a few banks or spread equally across the system. But we
can expect that the report will raise new questions about the health
of other banks in Latvia. The FCMC's release of the numbers just
prior to the four day Independence Day weekend is probably not an
accident and designed to avoid a panicked reaction.

Larson

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