OREANDA-NEWS. March 24, 2010. The Latvian Cabinet of Ministers decided that some of the Parex banka’s assets will be split-off, and a New Bank will be established. The main beneficiaries of this will be depositors in the existing Parex banka, who will automatically be transferred to the New Bank. The New Bank will have a stable financial foundation that will make it possible to attract investors more successfully so that the State resources invested in the bank can be repaid at the earliest possible convenience.

The New Bank will continue to service all existing client accounts, and all guarantees and advantages that have been ensured for clients will be maintained. Existing and new clients, particularly Latvian companies, will have access to new savings products and credit lines. The Parex banka has already received permission from the Finance and Capital Markets Commission (FKTK) to increase credit limits to the bank’s largest and most loyal corporate clients. Moreover, an agreement has been reached with the European Investment Bank on the provision of EUR 100 million so that the Bank can start issuing loans to small and medium enterprises. A trade financing agreement has been concluded, too, with the European Bank for Reconstruction and Development (EBRD). Until it is sold to investors from the private sector, the Bank will be owned by the Latvian Government and the EBRD.

The existing Parex banka will continue to pursue some of its business activities, focusing primarily on recovering resources. After assets and liabilities are split off, the Parex banka will not need additional financial support from the State in the foreseeable future. As the economic situation improves in Latvia and the rest of the world, the Bank will gradually accumulate assets and recover the monies that have been invested by the State. The Bank will preserve its ownership structure and continue to provide services to some of the mortgage and other loans that have been issued. It will also sell certain assets in accordance with a strategy that has been approved by the Bank’s shareholders and the European Commission (EC).

The primary goals of Bank restructuring are to stabilise its operations, establish a stable bank with long-term potential, and increase interest among private investors. The bank will be able to provide its resources to the market in a longer time frame so as to ensure maximal returns on the State’s investments. Support for Parex banka operations will also mean support for economic recovery in Latvia.

The decision on selecting a restructuring model for the bank is of essential importance so that the transformation of the Parex banka can be completed and then submitted for the approval of the EC. That is what the EC requires when it comes to government support for financial institutions in EU member states. The splitting off of assets and liabilities will begin once the EC gives its approval to the bank’s restructuring plan.