The Finnish owners of Nemea Bank are likely to appeal against the withdrawal of their licence by the European Central Bank, insisting it had been sufficiently capitalised.
The shareholders have 30 days in which to apply for cancellation of the decision made by the ECB last week to withdraw the licence and 60 days to take the case to the EU courts.
“The withdrawal decision will be suspended until the processing of and decision upon such appeals. In addition, the shareholders have previously appealed from directives issued by the Malta Financial Services Authority before the Financial Services Tribunal,” bank chairman Heikki Niemela told Times of Malta.
The MFSA first highlighted there were regulatory shortcomings at the bank last year, appointing PwC in April 2016 as the “competent person” to take charge of the assets of the bank to safeguard the interests of depositors and its other clients and to assume control of the bank’s business.
The shareholders increased the capital by €3 million in April 2016.
The core equity ratio, a measure of strength, never dropped below the applicable limit
Mr Niemela said that as at May 10, 2016, the bank’s capital stood at €8 to 9 million.
“This was well above any requirements. On top of that, guarantees and additional cash investments were on the table, also from further investors,” he insisted. Mr Niemela said the core equity ratio – a fundamental measure of a bank’s financial strength – had never dropped below the applicable limit.
“Whereas the bank regulation requires a single-digit CET ratio, the bank’s CET ratio was to our understanding in a double-digit level prior to appointment of PwC as the competent person,” he said.
According to unaudited accounts, the online bank had assets of €68 million as at March 2016 and owed €61 million to its few thousand customers, most of whom residing overseas.
The chairman said that as far as he was aware, deposits had decreased to about €50 million, with total assets decreasing proportionally, and added that customers were still paying off their loans and advances, and therefore, the figure of bad debts was not increasing.
He said he was not aware whether PwC did anything to improve the bank’s position.
“Under the bank’s lawful control before April 26, 2016, the board and management were working relentlessly to bring all improvements requested by the MFSA into action. Under the board’s control, the bank always strived to fulfil any requirements given by the regulators,” he noted.
The MFSA at the time insisted that, despite repeated requests to the shareholders, “to date, no tangible progress has been registered to fulfil these regulatory requirements” and recommended that the ECB should withdraw the licence in the interests of the depositors of the bank.
The implications of Nemea’s crash for the local economy are considered to be limited, beyond reputational risk. However, the MFSA’s ‘frequently asked questions’ section confirms that if there were insufficient funds to repay depositors, they would be able to claim from the local Depositor Compensation Scheme.
Mr Niemela is adamant that it should never come to that: “If the bank’s depositors’ funds are compromised and would somehow need to be compensated by DCS, it can only be because of excess costs and loss of income as a result of the decision to appoint a competent person to a profitable, healthy, highly liquid and well-capitalised bank. The depositors’ funds have never been in danger under normal operations. The bank has always maintained ample liquidity well in excess of regulatory minimums to repay any deposits due for repayment.”
Both the MFSA and PwC said they were not in a position to comment.