Lack of customers led to suspension of Sofia Bank’s operations

(FIN-FSA) withdraws Sofia Bank Plc’s deposit bank authorisation

Seppo Sairanen

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The Financial Supervisory Authority (FIN-FSA) has withdrawn Sofia Bank Plc’s deposit bank authorisation with effect from 28 March 2010, resulting in the suspension of the Bank’s operations.
     
The operations of Sofia Bank were started up in January 2009 by investor Seppo Sairanen, the former principal shareholder of the asset management firm FIM, after he had sold his holding in FIM in 2007 to the Icelandic financial services company Glitnir.
      However, the bank was unable to become profitable enough to continue banking operations.
      In connection with the withdrawal of authorisation, FIN-FSA placed Sofia Bank into liquidation and appointed an administrator for the Bank to manage the liquidation.
      According to Deputy Director General Jukka Vesala of the Financial Supervisory Authority, the bank was unable to get enough customers in order to make its business operations profitable.
     
The withdrawal of authorisation is due to the Bank’s own funds falling below the minimum level a credit institution is required to hold.
      ”When it comes to the capital adequacy of banks authorised in Finland, the minimum requirement is that a bank’s own funds amount at least to EUR 5 million. Sofia Bank’s own funds totalled EUR 3.4 million last Wednesday”, Vesala reports.
      ”The bank’s cost structure in relation to the number of customers was too heavy”, Vesala adds.
      According to Vesala, the bank’s largest item of expenditure consists of labour costs. Sofia Bank has 60 employees.
      In 2009, the operating loss of Sofia Bank amounted to EUR 9.7 million.
     
At the end of January, Sofia Bank informed FIN-FSA of the fact that its own funds were EUR 800,000 below the minimum requirement of EUR 5 million.
      Somewhat later, even the bank’s capital adequacy ratio fell below the minimum requirement of 8 %.
      The capital adequacy ratio of banks authorised in Finland was on average 14.5% at the end of 2009.
     
In February, FIN-FSA imposed a deadline on Sofia Bank for remedying the situation.
      This was done in order to give the Bank time to negotiate different options for bringing the amount of the Bank’s own funds to the required levels.
      FIN-FSA decided to withdraw authorisation when it became apparent that the resolution options would not materialise by Wednesday March 22nd, which was the deadline.
      On Friday of last week, Sofia Bank closed its online bank, reporting that the reason for the closure was maintenance work.
     
During the negotiations held over the weekend it became apparent that Sofia Bank has no prerequisites for increasing its own funds.
      ”At the weekend we decided that the bank can no longer be kept opened, in order that no customers can make further deposits and to prevent repayment of deposits and other assets to any customers before others. The decision was necessary to safeguard the interests and equitable treatment of depositors and other creditors”, Vesala argues.
     
Sofia Bank holds about EUR 150 million worth of deposits, and there are about 5,000 deposit customers.
      The average deposit is EUR 30,000 per client. In Finland, the deposit protection amounts to EUR 50,000 per depositor.
      ”Sofia Bank has some 700 deposits that exceed the deposit protection”, Vesala notes.
      In addition, the Bank has money market investments from other banks or companies amounting to approximately EUR 30 million that are not covered by the deposit protection.
      Sofia Bank has been specialised in the asset management of wealthy people in particular, offering depositors fairly high interest rates.
     
The administrator appointed by FIN-FSA will next start to manage the realisation of the Bank’s assets.
      According to information currently available to FIN-FSA, the value of Sofia Bank’s assets covers at least the bulk of its deposits and other liabilities.
      Vesala is unable to estimate as yet when the repayment of deposits will be effected.
      If all deposits and other liabilities cannot be repaid in full within a reasonably short time, the deposits will be reimbursed from the Deposit Guarantee Fund, according to the relevant rules.
     
According to the FIN-FSA Deputy Director General, the operations of Sofia Bank have so far given no reason to suspect any criminal activities.


See also:
  Court of Appeals overturns some convictions in Uoti asset concealment case (17.12.2007)
  Principal shareholder´s jail sentence forced FIM into Glitnir sale (6.2.2007)

Links:
  Financial Supervisory Authority press release, 29.3.2010

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