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Latvia: Baltic Bank Chiefs Look Ahead To EU Integration

By Breffni O'Rourke/Latvian Service

Prague, 16 October 1997 (RFE/RL) -- Central bankers from the Baltic states have been speaking about the progress of their countries towards economic and financial integration with the European Union.

The officials are in Riga attending the third international conference on Banking and Finance in the Baltics, which draws together bankers and investment experts from around the world.

The governor of the Latvian Central Bank, Einars Repse, outlined in a speech his country's efforts to rectify weaknesses noted in an EU assessment of Latvia's finance sector. He said draft laws to control abuses like money laundering are now going through the legislative process. And he said the Bank of Latvia is working on new code of rules for credit institutions.

Repse noted that the EU regarded Latvian Banks as weak and undercapitalized. He said it's true they are small by international standards, but he said that in the coming two years, new regulations would come into force increasing the minimum capital requirements for banks. He cautioned local bankers however against feeling comfortable if they merely met the minimum requirements.

Repse noted that many small banks focus on servicing non-resident customers, which he described a profitable line but requiring high awareness of risks. He said Latvian banks had recently suffered difficulties on the St Petersburg market, and that this should serve as a warning. He said the Latvian authorities favor more consolidation in the banking sector.

In a separate speech Latvia's Finance Minister Roberts Zile said Latvia should not encounter problems in meeting the EU's convergence criteria. He said the country is already meeting the Maastricht accord criteria on budget deficit and state debt, and is close to meeting the requirements on state securities' interest rates. And he said of all the Baltic states, Latvia had shown the best results in fighting inflation.

The governor of the Bank of Lithuania, Reinoldijus Sarkinas, told the conference that his country's main economic goal is to join the EU and the single European currency. He said Vilnius is underway with plans to dismantle its currency board. The board, which took over some of the functions of the central bank, was set up as a way of maintaining financial stability during the introduction of the national currency the litas. Sarkinas said the board had been helpful, particularly in controlling inflation, but would eventually hinder efforts by a modernized central bank to formulate and implement independent monetary policy.

Sarkinas said that in 1999 the central bank would start a program to reorient the litas, so as to link it to the Euro. The litas is presently linked to the dollar, and much of Lithuania's public debt and external payments are denominated in that currency. He said that therefore, the reorientation might involve the use of a currency basket consisting of the dollar and the Euro as a transitional peg.

Sarkinas said another key component in the strategy to ensure a healthy financial system is to improve banking supervision. He said efforts at this had been underway for several years, with some difficulty. He said the process of regaining public confidence is underway, and that all Lithuanian banks had increased their capital so that they now meet or far exceed the EU requirements. The governor of the Bank of Estonia, Vahur Kraft, told the conference there has been both inward and outward expansion of the Estonian banking and finance sector. He said on the inward side, Swedbank had increased its stake in the Estonian Savings Bank; Svenska Handelsbanken had acquired a local brokerage firm; and Finland's Merita Bank had opened an Estonian branch. In terms of outward expansion, Estonia's Hansabank and the Bank of Tallinn had acquired Latvian banks, and Estonian banks had also established leasing subsidiaries in Lithuania and Latvia.

Kraft said that in the name of Baltic integration, the presence of Latvian and Lithuanian financial companies in Estonia would be welcome.

He said that as the objective of all Baltic states is to join the EU, it's evident there is a need among the Balts for unified rules that promote efficiency and competition in the financial world. He said the impact of EU regulations on the Baltic financial industry is fundamental, and that the process of integration of the Baltic's is gaining momentum.