Story of success and current situation

Once in Latvia, after regaining its independence, the banking sector became a role model for rapid modernization and success. The banking sector in this small Northern European country has offered most innovative banking solutions, however in 2016 this scenario has turned 180 degrees.

The reforms were necessary; however, the changes are more dramatic than it was previously thought. The Latvian banking sector is no longer a place where interests of world economy are served.

The noble anti-money-laundering efforts are seamlessly and completely destroying the possibility of serving the international business. This is done gently, but with no compromise- the financial sector smoothly becoming only available to the internal market, serving only households, local business and national enterprises.

Forecast

Given the size of Latvian economy and the volume of internal demand, the links with global economy will decline steadily in the future.

Some financial market professionals and analysts are carefully mentioning the contraction of growth of large foreign banks. It is most likely that foreign banks will lack growth due to weak internal demand and will decide to leave Latvia. The international businesses which still will be left in Latvia probably will be serviced from the banks’ headquarters outside Latvia.

Small local banks most likely will become even smaller in size and will specialize in servicing the interests of their shareholders and negotiating terms with the regulator on each potential transaction.

As it is impossible to close the whole banking sector in one day, as it might cause unnecessary panic, this process will be stretched for several years. The result will be the same, the banks in Latvia will be closed, as the current business models are already prohibited. To develop alternative business model is impossible in Latvia due to the size of the market. Large international businesses are taking over the Latvian share of the banking services successfully and with no difficulties.

There is the only way how banks (financial industry) can survive in the current conditions- lower their expenses. This means that banks have to terminate all operations that are not bringing profit, decrease number of staff and branches, sell assets with no return on investment, and make a transition to serve clients remotely- fully online.

Safe deposit boxes

The safe deposit boxes are the case, which brings low return to the commercial banks and low profit share with increased probability of reputation damage, as well as potential financial losses. The profit share of these operations is low, the penalties, on the other hand, are high in case the financial regulator decides to impose a fine. Currently, the banks are obliged not only to know who their clients are, but also know what is stored in the safety deposit box of the client. The banks have to decide how do they comply with such regulation- either ask clients to show the items in the safety deposit box, or use the technology to screen for dangerous objects.

The banks have decided that maintaining the safety deposits is not worth it, so they are steadily closing this operation. The Scandinavian bank SEB- has closed this service and another Swedish bank Swedbank is limiting access to such service, through tougher requirements to the clients.

Clients are facing constant and elevated risk from the bank- bank can limit access to the safety deposit box at any time, if it will have any suspicions. Banks can forcefully open the safety deposit box in front of the witnesses. Besides that, banks might ask for documentation proving the origin of the items and involve the police or any other authorities. Moreover, banks might refuse the renewal of the rental agreement at any time.

The solution

The best alternative to banks’ safety deposit boxes are the private vaults, which have no connection to the financial market.  In the democratic society people can’t be refused in their right to own valuable objects. This means people have to be offered serv ice to store such valuables.

As a consequence, the count of bank-run safety deposit boxes is decreasing, whilst the private independent safety deposit boxes are growing in number. The expansion of privately-owned safety deposit boxes are facilitating the security standards and solutions, convenience for the clients and the offering of additional services (such as conference rooms, security services, assistance in purchase of assets, the insurance etc.)

The increased popularity is gaining the automatic safe deposit boxes, which are accessible 24/7.

JSC “Rigas Seifi” is a private company, which does not work in the financial sector. However, from the beginning it was aiming to bring the highest standards set in the industry of private safety deposit boxes. Rigas Seifi is an approved member of the Safe Deposit Federation.