OREANDA-NEWS. On November 26, 2008 The European Commission has approved, under EC Treaty state aid rules, the emergency support intended to facilitate the financing of Parex banka, reported the press-centre of Parex banka.

The Commission found the aid to be in line with its guidance Communication on state aid to overcome the current financial crisis. The aid is necessary to avoid a serious disturbance in the Latvian economy.

The measures are limited in time and scope to the minimum necessary to restore the financing, require an adequate fee level and provide safeguards to minimise distortions of competition. They are therefore compatible with Article 87.3.b. of the EC Treaty.

Competition Commissioner Neelie Kroes said: "After intensive exchanges with the Latvian authorities, the Commission approved the urgently needed measures as the notified measures are compliant with the State aid rules." Iveta Sulca, Head of the Europena Commission’s bureau in Latvia added: “The European Commission made a decision as soon as all the necessary information and guarantees of the compliance of the state aid to the principles of fair competition were provided by the Latvian side. The European Commission offers its member states a wide range of instruments for the stabilization of the financial system in the circumstances of global crisis, e.g. guarantees and capitalization. Tomorrow the Commission will propose an in-depth European Union recovery plan for co-ordinated actions to overcome economic crisis.”

On 10 November 2008, the Latvian authorities notified a package of measures aimed at tackling the liquidity problems and possible shortcomings in capital of Parex banka. The measures were necessary, because of the drying up of the funding markets and due to the distorted valuation of the financial instruments.

The package consists of a state guarantee covering certain existing and new loans, of a state 1-year deposit to support the bank's immediate liquidity needs and of subordinated loans to strengthen its capital base. The maturity for new loans is limited to three years and for subordinated loans to five years.

The package comprises elements of state aid but contains several provisions aimed at ensuring its adequacy and proportionality under the EU state aid rules, in accordance with the Commission's guidance document.

In particular, the measures will be remunerated by significant fees. Moreover, a series of behavioural commitments will be imposed on Parex banka. These include a limit on growth in balance sheet, marketing restrictions relating to the state support and limitation to acquire businesses or companies, while it benefits from the aid.

The Commission decision covers a period of six months, following which Latvia should terminate the public support to the bank or renotify to the Commission for a new assessment. This will enable the Commission to verify that the support measures are not maintained if the financial crisis is over. The Commission reserves the right to review its assessment, if the measures are modified by the Latvian authorities.

The non-confidential version of the decision will be made available under the case number NN 68/2008 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.