Last week Lithuania’s fifth-largest bank, Snoras, was nationalised as Lithuanian authorities shut down the bank after it observed irregularities in the bank’s operations. On Monday this week, the Latvian authorities suspended the Latvijas Krajbanka (Latvian Savings Bank). Krajbanka is Latvia’s ninth-largest bank.
We believe the systemic risk from these events should be relatively limited if handled properly by the authorities. That said the collapse of especially Snoras is not good news for the Lithuanian economy, as it creates uncertainty about the economic outlook. In our view it is especially important that the nationalisation of Snoras is handled in such a way as to put minimal pressure on Lithuanian public finances that are in a precarious state as it is. The full nationalisation of Snoras, in the sense of taking over all liabilities, would be unwarranted.
Earlier this week the Lithuanian Prime Minister Kubilis said that the problems at Snoras could involve “shady financial transactions” (according to the news agency Reuters) and the case was more “complicated” than initially thought. Lithuanian central bank governor Vasiliauskas, at a news conference, said that “we thought it was a flu, but now it seems to be a small cancer”. These comments obviously give reason for concern.
So far market reaction in the local markets has been relatively limited. Not surprisingly the share prices of some of the small locally-owned banks in Lithuania have been under pressure. There has also been some pressure on the Latvian lat and local rates and yields are up somewhat.
Furthermore, last week when the news of Snoras’ collapse broke we saw an initial minor negative reaction in the Swedish krona, but since then there has not been any visible spill-over to the Scandinavian FX and fixed income markets, where the euro debt crisis continues to dominate.
We believe the systemic risk from these events should be relatively limited if handled properly by the authorities. That said the collapse of especially Snoras is not good news for the Lithuanian economy, as it creates uncertainty about the economic outlook. In our view it is especially important that the nationalisation of Snoras is handled in such a way as to put minimal pressure on Lithuanian public finances that are in a precarious state as it is. The full nationalisation of Snoras, in the sense of taking over all liabilities, would be unwarranted.
Earlier this week the Lithuanian Prime Minister Kubilis said that the problems at Snoras could involve “shady financial transactions” (according to the news agency Reuters) and the case was more “complicated” than initially thought. Lithuanian central bank governor Vasiliauskas, at a news conference, said that “we thought it was a flu, but now it seems to be a small cancer”. These comments obviously give reason for concern.
Relatively limited market reaction for now
So far market reaction in the local markets has been relatively limited. Not surprisingly the share prices of some of the small locally-owned banks in Lithuania have been under pressure. There has also been some pressure on the Latvian lat and local rates and yields are up somewhat.
Furthermore, last week when the news of Snoras’ collapse broke we saw an initial minor negative reaction in the Swedish krona, but since then there has not been any visible spill-over to the Scandinavian FX and fixed income markets, where the euro debt crisis continues to dominate.