* Latvia cancels debt sale due to market nerves as bank
* Prosecutors open criminal probe, detain bankers
* Banks' supervisor says 100 mln lats missing
* Central bank reassure on other banks
(Adds size of missing assets, prosecutors, PM)
By Aleks Tapinsh
RIGA, Nov 22 Latvia cancelled a sale of
10-year bonds due to increased investor nervousness after
regulators suspended a mid-sized lender, but denied on Tuesday
that it was facing a systemic banking crisis.
The actions carried unwelcome echoes of the financial
turmoil of 2008 that tipped all three Baltic states into brutal
recessions, but one analyst said there was no underlying cause
for alarm at this stage.
Late on Monday, Latvia ordered the suspension of Latvijas
Krajbanka, the country's sixth-largest deposit-taker, after
uncovering a shortage of funds there.
Last week neighboring Lithuania took over bank Snoras, its
third largest depositor, which owned 68 percent of Krajbanka.
The FKTK bank supervisor said on Tuesday that 100 million
Latvian lats ($191 million) was missing from Krajbanka.
Ilmars Rimsevics, Latvia's central bank chief, told public
radio the closure of Krajbanka would have little "systemic
influence", because the bank had only minor obligations to other
Latvia's banking sector is dominated by Scandinavian banking
groups, such as Swedbank and SEB.
"We do not see anything dramatic this time," he added.
During the last crisis, Latvia had to rescue its
second-largest bank Parex and needed a 7.5 billion euro
But Krajbanka, the 10th largest bank by assets, has a long
history and a wide branch network, particularly in rural areas.
Latvian media reported that some towns faced particular
difficulties as Krajbanka supplied their sole cash machines.
Latvian Prime Minister Valdis Dombrovskis and the banking
supervisor said they expected Lithuania, now major shareholder
of Krajbanka, to get involved.
"We will await until the Lithuanian government invests
capital into the bank the same way as did the Latvian government
(into Parex)," Irena Krumane, the head of the banking oversight
body FKTK, told journalists.
Dombrovskis, due to meet with his Lithuanian counterpart
Andrius Kubilius on Friday, said he expected the Baltic neighbor
to "act responsibly".
Krumane added: "If... Lithuanian government decides to
liquidate Snoras Bank, correspondingly we will have to consider
liquidate Latvijas Krajbanka."
In that case the state would have to compensate about
237,000 savers eligible to receive deposit insurance of up to
100,000 euros from the guarantee fund.
The fund currently has 149 million lats, and if that falls
short, the fund would have to borrow from the government,
Since Lithuania seized Snoras, the cost of insuring both
Latvian and Lithuanian five-year debt has risen since by about
20 basis points.
The Latvian Treasury said its cancellation of its planned
sale of 10 million lats in 10-year bonds on Tuesday would have
little impact on state finances with 1.2 billion lats at its
The former owners of Snoras and Krajbanka have denied any
wrongdoing and threatened legal action.
($1 = 0.5235 Latvian lats)
(Additional reporting by Patrick Lannin in Stockholm; Editing
by John Stonestreet/Ruth Pitchford)