Unavailability of deposits of PNB Banka

Unavailability of deposits of PNB Banka

15 August 2019 the Financial and Capital Market Commission of Latvia (Lat. Finanšu un kapitāla tirgus komisijas, FCMC), being a regulatory authority of financial services provision in Latvia, has published an information that AS PNB Banka’s (former Norvik Banka) functioning has been suspended.

The decision of FCMC has been made in extraordinary meeting of its members in order to implement the decision of  European Central Bank (ECB), which recently was a direct supervisor of PNB Banka’s activities.

ECB’s assessment

The results of ECB’s analysis provide for detection of:

  1. significant deterioration of PNB Banka’s assets which led to reduction of its capital so that bank’s assets became less than its liabilities.
  2. PNB Banka does not meet the requirements for authorization and cannot guarantee that it could comply with capital requirements in the near future.

ECB also has published some facts which were used during the analysis:

  1. PNB Banka has been established in 1992 under the name of AS Norvik Banka (which has been subsequently changed to AS PNB Banka in November 2018) as a private bank.
  2. It is the sixth-largest bank in Latvia with total assets’ value of 550 000 000 Euro.
  3. As of the end of first quarter of 2019, the bank’s financial statements contained information of deposits of 472 000 000 Euro.
  4. The breach of capital requirements was traced since the end of 2017.
  5. PNB Banka has been informed several times by the competent authorities that is must restore compliance with basic requirements, and the timeframe for such restoration has been established. The bank did not take measures to remediate.
  6. The ECB established direct supervision of this bank on 4 April 2019, at the request of FCMC.
  7. 11 July 2019 the ECB has ordered the bank to eliminate its capital shortfalls and other deficiencies in particular timeframe.
  8. 25 July 2019 PNB Banka has published its audited financial statements for 2018. According to the independent auditor’s qualified opinion, the bank did not calculate properly the expected credit losses on loans and receivables from customers. Also, the bank did not recognize correctly the impairment of tangible fixed assets as at 31 December 2018.
  9. 12 August 2019 the ECB concluded an on-site inspection of PNB Banka, which identified a substantial provisioning shortfall and found some signs indicating that the assets of the bank were less than its liabilities.
  10. PNB Banka has failed to provide an evidence that it will be able to replenish its capital in timeframe established by ECB.

Rejection to resolve

After the ECB has published its report on PNB Banka’s incompliance with regulatory requirements for banking activities, the request to resolve has been sent to Single Resolution Board (SRB) in accordance with Regulation (EU) No 806/2014 of the European Parliament and of the Council.

SRB has not detected the necessity of resolution action towards PNB Banka, based on that this financial institution is not of strategic importance for economy and its discontinuance will not have adverse impact on financial stability of Latvia and other EU Member States. Due to this, the liquidation process of this bank must be initiated according to Latvian law.

Unavailability of deposits

Due to all circumstances mentioned above, FCMC has decided on the unavailability of deposits of PNB Banka starting from 21:00 CET 15 August 2019. This means that the provision of all financial services by PNB Banka is suspended, including customers operations with use of bank cards, ATMs and online bank.

The Chairman of FCMC, Kristīne Černaja-Mežmale has made the following announcement on the situation of PNB Banka: We are aware that this news is unexpected for the bank’s customers, but we can confirm that the FCMC is working to find the most convenient and efficient solution to start the payout of guaranteed compensation to the customers as soon as possible, covering the customer funds deposited in the bank up to 100 000 euro. In the coming days, 99.2 % of depositors will be able to start receiving their money deposited in the bank, which will be fully covered by the funds of the Deposit Guarantee Fund”.

In accordance with Latvian Deposit Guarantee Law, the disbursement of compensation of the amount not exceeding 100 000 Euro is guaranteed. It may be provided as for natural persons, so for legal entities of any nationality or residency which hold any type of account or deposit in any currency. The amounts exceeding 100 000 Euro may only be levied as a creditor claim in liquidation procedure.

Deposit Guarantee Law obliges FCMC to start disbursements of compensations not later than in 8 working days from the date of unavailability of deposits, i.e. in this case from 27 August 2019. The details about necessary documents, procedure and timeframes of compensation will be published on the official website of the FCMC.

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