OREANDA-NEWS. April 05, 2011. The year 2010 marked significant changes in the economic activity of AS Parex banka – on 1 August, with the state aid, the restructuring of Parex banka which had found itself in financial difficulties was successfully implemented, and Parex banka became a unique financial institution in Latvia – a specialized distressed asset manager – with an ambitious aim: maximum recovery of the state aid, reported the press-centre of Parex Banka.

Under the International Financial Reporting Standards which are binding upon the bank, in the accounting period Parex banka established reserves in the amount of LVL 115.7 million for non-secure loans. The correction has naturally affected the general financial indicators, and Parex banka closed the year 2010 with forecasted losses of LVL 152.7 million. It must be emphasised that all the recovered resources are transferred to repayment of the syndicate loan and the state investment, thus, in line with the approved restructuring plan the operation of Parex banka is not expected to be profitable at any time soon. At the same time the bank strives to limit losses as much as possible and it therefore implements thought-out and cautious operational and financial activities by carefully evaluating all expenses.

“After the split Parex banka became a unique financial institution in Latvia with a great responsibility towards the state and investors. This work is not only complicated but very hard as well, since we deal with various debtors in Baltic, CIS and offshore countries. Attitude towards implementation of their obligations is as various and we often encounter with deliberately dishonest actions,” says CEO of Parex banka Christopher Gwilliam.

During the accounting period Parex banka has launched several proceedings against clients who have failed to implement their obligations in a long term. The management of Parex banka has said recurrently that it will use all legitimate means to protect the interests of the state and to combat any malicious and penal actions.

“After having worked for eight months at Parex banka, we now see that not all loans were used in line with the initially stated purpose. As a result, the collateral is substantially smaller than the loan. Actually, consequences of the careless attitude of these borrowers lies on shoulders of the Latvian tax-payers, because unfortunately in such cases very often the Bank has no choice but to recognize losses,” emphasises Christopher Gwilliam.

In compliance with the Restructuring plan of AS Parex banka and the decision of the Cabinet of Ministers, the share capital of the bank was increased by LVL 9.7 million on 28 December 2010. The purpose of the transaction was to meet the capital adequacy requirements. State Joint Stock Company Privatizacijas agentura increased the state’s involvement in the Bank’s share capital by acquiring the newly-issued shares. Thereby, as at 31 December 2010 the proportional distribution of Parex banka shareholders was as follows: Privatizacijas agentura – 81.83%, European Bank for Restructuring and Development – 14.62%, and minority shareholders – 3.56% of Parex banka shares.

By evaluating the amount of investments in Parex banka, stability of LVL currency market, as well as liquidity ratios, on 5 May 2010 Parex banka entered into a contract with the Bank of Latvia for early repayment of the borrowed funds in the amount of LVL 117.6 million. In December 2010 Parex banka repaid LVL 9.7 million in interest for use of the state deposit.

As at 31 December 2010 the loan portfolio of Parex banka and the Group was LVL 566.3 and LVL 541.6 million respectively, total assets – LVL 789.3 and LVL 792.1 million. The amount of capital and reserves at the end of 2010 was equal to LVL 48.5 and LVL 48.1 million.

From 1 August 2010 till the end of the accounting period, namely within 5-month time, Parex banka had recovered LVL 58 million. Basically this sum consisted of monetary instruments recovered through distressed loan restructuring activities and sale of securities, but the sales volume of the repossessed real estates was insignificant and did not actually have any effect on the total amount of the recovered sums. Having regard of the prevailing situation and particularly low prices in the real estate market in 2010, in majority of cases the potential market value of the assets in question was substantially higher than the offered one.

In order to manage the vast assets (almost LVL 800 million) of Parex banka efficiently, in the second half of the accounting period a great deal of attention was paid to attracting adequately trained professionals. By the side of globally accepted standards, Parex banka with only slightly more than 100 employees is considered to be a very efficient organization. The success of the modern enterprise model lies in advised attraction of outsourcing service providers and continuous evaluation of administrative resources.

Due to objective reasons Joint Stock Company Parex banka is planning to submit the audited financial statements of 2010 to the official central storage system of the mandatory information and a/s NASDAQ OMX Riga within two months as of submission the unaudited financial statements, i.e., by 31 May 2011. Under provision of the law, statements have been given to a certified auditor for examination, so as to be submitted to Parex banka Supervisory Board for obtaining an opinion and to the shareholders meeting for approval.