(Removes reference to c.bank chief in second paragraph, adds Petrova quote, ABLV background in paragraphs 5-6)
RIGA, July 2 (Reuters) - Latvia’s economy will grow slower than previously expected this year as a result of an outflow of assets from non-resident focused banks and wider worries about the financial services sector, the International Monetary Fund (IMF) said on Monday.
The Fund lowered its growth forecast for 2018 to 3.7 percent from a projection of 4 percent earlier this year, mission chief Iva Petrova told reporters at a news conference following a regular review of the country’s economy.
The Bank of Latvia predicts growth of 3.9 percent this year. The European Commission sees growth of 3.3 percent.
Confidence in Latvia’s financial sector has been shaken in recent months.
ABLV, Latvia’s third biggest bank, was deemed as failing or likely to fail by the European Central Bank in February. It went into voluntary liquidation four months later.
“The main impact on the economy and the reputation of the financial system came with the events that unfolded in February,” Petrova said.
ABLV had been accused by the U.S. Treasury Department’s Financial Crimes Enforcement Network of institutionalized money laundering and violating sanctions imposed on North Korea.
ABLV has denied the accusations.
Since Latvia secured independence from Russia in 1991, more than a dozen Latvian banks - including ABLV - have promoted themselves as a gateway to Western markets and promised Swiss-style secrecy for clients.
But increased regulatory scrutiny has seen non-resident deposits fall to around 5.1 billion euros currently from a peak of about 12 billion euros ($15 billion) in 2015.
The IMF estimates that servicing foreign client assets accounts for about 0.5 percent to 1 percent of Latvia’s GDP.
“We think that the measures related to strengthening enforcement of AML/CFT regulations and refocusing the business model (of non-resident banks) would help to restore the reputation of the banking system,” Petrova said.
In a separate development, Latvian prosecutors have charged central bank governor and European Central Bank governing council member Ilmars Rimsevics with accepting the offer of a 500,000-euro ($580,000) bribe. He denies the charges. ($1 = 0.8624 euros) (Reporting by Gederts Gelzis Editing by Simon Johnson and Matthew Mpoke Bigg)