What Happened to PNB Banka?

The deoffshorization process is in full spate, causing a new victim. Another major bank in Latvia is suspended. We are talking about PNB Banka, which was previously called Norvik Banka. The formal reason for the bank closure owas the decision of the ECB. It concluded that the bank financial condition does not meet the established requirements, and this can lead to difficulties in repaying obligations. As a result, the Financial and Capital Market Commission issued a decree on the suspension of all financial transactions conducted by PNB starting from 21:00 on August 15.

Reasons for suspension of PNB Banka

Authorities insist that the closure of PNB has nothing to do with the deoffshorization process. However,many experts are convinced that this event is directly related to the ongoing struggle with non-resident business. This is not the first bank liquidated in Latvia. The depositors have not yet come to their senses after the last year episode with ABLV bank. Even though many of its clients received the compensation, the closure of ABLV caused flee of foreign companies from Latvia and the decrease in banking system assets. Now the situation is repeating, however, authorities deny waging a deliberate fight against foreign business.

As of mid-2019, PNB Banka had about 100,000 customers and one of the widest branch networks throughout the country. More than 90% of the clients were residents of Latvia. The bank's assets amounted about 570 million euro. Due to the massive outflow of funds from the Latvian banking system, this indicator has shown negative dynamics in recent years. The bank completed the first quarter of 2019 with losses of 1.5 million euro and had a great number of obligations. Altogether, it became the main formal reason for the termination of operations. According to the ECB, if the bank had continued its activities, it could have risked going finally bankrupt and its depositors would have witnessed even more difficult situation.

According to the officials from the ECB, major problems occurred in PNB Bank in 2017. The ECB has repeatedly called on the bank's management to take steps to stabilize the financial situation. The bank did not follow the recommendations. On July 11, the ECB decided to intervene early in the bank's activity with a call to eliminate the capital deficit as soon as possible. After a month the bank has failed to eliminate the deficit of funds. Moreover, it failed to convince the authorities of the capability of increasing capital to the required level. As a result, the ECB decided to terminate any further activities of the bank.

Consequences of bank liquidation: when the compensation is expected?

On August 16, the first lines of bank customers began to gather in front of the bank, since PNB was one of the ten largest financial institutions in the country. People were perplexed to realize that all their deposits were frozen and the cards stopped being serviced. According to official information, all PNB Banka customers are entitled to full reimbursement of their deposits. By law, the process shall begin no later than a week after the announcement of liquidation. Thus, no later than on August 27, official information on the compensation procedure should appear. Since many customers kept all their savings in the bank, the hype around the PNB bank’s closure is now very high.

According to the information available, compensation payments to PNB clients will be made through Citadele bank. It has already dealt with depositors of liquidated banks, so the reimbursement process should not cause any particular problems. The exact mechanism is yet to be specified. However, the current legislation provides that customers who have deposited less than 100,000 euro are entitled to a 100% reimbursement of deposits. Therefore, about 99.2% of all PNB bank clients expect full return of their savings. According to preliminary estimates, the total amount of compensation will reach about 279 million euro.

Latvian authorities promise that not a single cent from the budget fund will be used to pay compensation. All reimbursements will be paid out of the guarantee fund, which currently holds about 506 million euro. This money should be more than enough to pay off obligations to all customers of the bank. Nevertheless, the process requires some time.

Clients who have deposited more than 100,000 euro in the bank will be able to file creditor claims for the rest of the debt after the start of the liquidation procedure and subsequently return all their money.

First of all, we recommend our PNB depositor clients to keep calm. Contact our specialists so that we can help you file a creditor application for guaranteed compensation and open an account in another bank.

By Intelligent Solution Group team