As it is known, on 4th of November the Single Supervisory Mechanism (SSM) will come into force. SSM is a framework in which the European Central Bank (ECB) will conduct direct supervision of largest banks of the euro area. Being assisted by national supervisory authorities, the ECB will attend to safety and soundness of the European banking system.

Conducting direct supervision, the ECB will control whether strategies of credit institutions, procedures and taken measures ensure appropriate risk management and capital adequacy of a credit institution to cover current and potential risks. In Latvia, the ECB in cooperation with the Financial and Capital Market Commission (FCMC) will conduct direct supervision of ABLV Bank, AS, as one of the three largest banks according to the asset volume.

Before the ECB starts to perform its supervisory duties, in-depth assessment of banks’ balance sheet and ability to endure stress scenario situations was made. The Comprehensive Assessment was carried out in cooperation with the national supervisory authorities and the European Banking Authority (EBA). The assessment lasted more than 12 months.

The Comprehensive Assessment consisted of three main pillars:

• Risk Assessment — to assess quantitatively and qualitatively the most significant risks, including liquidity, leverage and funding;
• Asset Quality Review focused on examination of the main balance sheet positions, as well as evaluation of data and asset quality and adequacy of provisions. The important part of the Asset Quality Review was an independent assessment of collateral under transactions involving credit risk;
• Stress Test — to examine the resilience of banks' balance sheets to stress scenarios.

Within the Comprehensive Assessment, in addition the ECB correlated results of the Asset Quality Review with those of the Stress Test in order to perform the assessment of banks’ risky assets more critically. For ABLV Bank loans related to corporate financing in Latvia, financing of property projects in Latvia and Russia, corporate financing in Russia, mortgage loans issued to the private sector in Latvia, as well as the portfolio of the property owned by the Group were assessed, which together compile the significant part of the risky assets of ABLV Bank. Assessing the asset quality, the conservative interpretation of the International Financial Reporting Standards was applied. The ECB has set a high capital threshold that was used as a benchmark. Considering that banks included in the Comprehensive Assessment are regarded important and significant for country’s financial system, a capital benchmark of 8% Common Equity Tier 1, including additional capital requirement amounting to 1%, was applied.

Publicly announced results show that our bank has successfully passed the comprehensive assessment. Our strict adherence to the conservative strategy of financing and asset assessment played a big role.

The CEO of ABLV Bank Ernests Bernis said: “The SSM will ensure better access to the information on banks’ health conditions, boosting trust in financial sector. This will give us and our clients additional sense of safety and will improve the further development of the bank. We are glad that ABLV Bank together with its subsidiary bank in Luxembourg is the only private bank from the Baltics that has fallen under direct supervision of the ECB among the largest and famous European banks. This is the result of our goal-oriented work over twenty years and the proof of the rightly chosen development strategy”.

Detailed information.

Summary.

FCMC comments on the results of comprehensive assessment.

ABLV Bank, AS, is the largest independent private bank in Latvia. The bank’s major shareholders — Oļegs Fiļs, Ernests Bernis and Nika Berne – directly and indirectly hold 86.23% of the bank's voting share capital. ABLV Group includes ABLV Bank, AS; ABLV Bank Luxembourg, S.A.; ABLV Capital Markets, IBAS; ABLV Asset Management, IPAS; Pillar Holding Company, KS; ABLV Consulting Services, AS; ABLV Corporate Services, SIA; New Hanza City, SIA, and other companies. ABLV Group has representative offices in Moscow, St. Petersburg, Yekaterinburg, Vladivostok, Kiev, Odessa, Minsk, Almaty, Dushanbe, Baku, Tashkent, and Limassol.