Emerging market banks: In the line of fire
Banks in emerging markets appeared to have escaped the worst of the financial crisis. Now, as capital markets seize up and the global economy heads for recession, they must face the same liquidity and solvency pressures as their western counterparts. Sudip Roy looks at the banks most likely to cope.
IN NOVEMBER, A presentation appeared on Latvian bank Parex’s website entitled ‘The leading independent bank in the Baltics’. Its timing was unfortunate.
Just days later, on November 7, the bank applied for support from the government following a run in which 12% of total deposits had been withdrawn since October 1. Latvia’s government acted immediately. The following day it announced that Parex, the Baltic republic’s second-biggest bank, had been nationalized after state-owned Mortgage and Land Bank acquired 51% of its shares. In addition, the government provided a liquidity injection and a guarantee for €775 million of syndicated loans that are coming due next year.
Even with these moves the bank’s future looks precarious. Resident and non-resident deposit outflows continue, according to Fitch Ratings, and the chairman of Mortgage and Land Bank has suggested that the government needs to inject at least a further Lats200 million ($355 million) of funds. Sixteen years after it opened its first commercial branch, Parex is on a life-support machine.
The Parex crisis is not a parochial event. It is, so far, the highest-profile emerging markets banking casualty of a financial crisis that is spreading fast to all developing regions.