The closure of Versobank will have very little effect on the Estonian economy

Keywords: 
  • The Estonian banking sector as a whole is stable and strong
  • Deposits at Versobank account for 1.5% of all the deposits in banks operating in Estonia
  • Versobank had 253 million euros of deposits, 87% of them held by non-residents

The closure of Versobank after its breach of anti-money laundering rules will have very little impact on the Estonian economy and banking as Versobank had only a marginal market share and the majority of the deposits in the bank are owned by non-residents.

Deputy Governor of Eesti Pank Madis Müller said that Versobank, which was closed for persistent breaches of anti-money laundering rules, was not a systemically important bank for Estonia. “The Estonian banking sector as a whole is stable and strong. The closure of Versobank shows that oversight of Estonian banks is effective and Estonia will not tolerate breaches of anti-money laundering rules”.

Versobank had a marginal share of the market and mainly handled services for clients from outside Estonia. At the end of last year, clients had around 253 million euros of deposits in Versobank, which is equal to only 1.5% of all the deposits in banks operating in Estonia. Of the deposits in Versobank, 87% were held by non-residents.

“Before the operating licence was withdrawn from Versobank, the Financial Supervision Authority carried out on-site inspections four times since 2015 and wrote an injunction requiring shortcomings to be eliminated. The closure of Versobank is a message that there is no place for money laundering in Estonian banking”, said Mr Müller, who is also a member of the supervisory board of the Financial Supervision Authority.

Suspicions about money laundering have touched banks operating in Estonia and Latvia in recent years. The Financial Supervision Authority uncovered serious shortcomings at the Estonian branch of Danske Bank in 2014 and wrote an injunction in 2015 requiring them to be eliminated. Danske responded to this by closing its problematic business lines aimed at risky non-resident clients. An additional independent enquiry has now been opened at the head office level of Danske Bank looking at banking transactions in the whole period from 2007 to 2015. The third largest bank in Latvia, ABLV, also came under suspicion of money laundering recently and the liquidation of the bank was initiated at the end of February this year.

Deposits of non-resident companies and household clients in the Baltic states are largest in Latvian banks and smallest in Lithuania. At the peak in 2014, 56% of all the deposits in Latvian banks were deposits of non-residents. This share had fallen to 41% by 2017. The share of non-resident deposits in bank deposits in Lithuania is only 2.8%. The share of deposits in Estonia held by foreign non-financial sector companies and households has been declining steadily, and it fell from a peak of 21% in 2012 to 8.5% by 2017.

More information about compensation of the deposits of Versobank clients and the liquidation of the bank can be found on the website of the Financial Supervision Authority.