Banks, Financial Services, Latvia, Legislation

The amendments to the Law on Credit Institutions limit benefits that shareholders derive from state-supported banks will be in force as long as the given bank receives state support. The new regulation will come into force on June 1 this year, therefore there is a sufficient transition period provided in the bill, writes LETA.

The amendments were drawn up by the Financial and Capital Market Commission.

The only bank in Latvia that is currently receiving state aid, and has certain restrictions imposed on its operations, is Parex banka, and the new provision concerns any liabilities of the bank that date back to before November 10, 2008, when the bank started to receive state aid.

The amendments are to be approved by Saeima now.

Krasovickis previously said that the new regulation comes as a result of New Era's wish to increase its popularity before the elections. "It is unfortunate that, because of the elections and saving couple dozen thousands of lats, a bank is being destroyed that used to be the best bank in the country, and billions of lats are being lost."

If the amendments are passed, Parex banka will never be sold, Krasovickis warned. Pension funds and foreign banks, for instance, Deutsche Bank, have invested money in Parex banka subordinated capital. If they stop receiving money from Parex banka, a scandal will occur that will destroy the reputation of the bank completely.

Krasovickis warned, in an interview with the newspaper Biznes&Baltija, that the said regulation would be an unilateral breach of the agreement that the bank's shareholders had signed with the state. "We are ready to file a claim against the state. No one will buy Parex banka because of the lawsuit. What is left then? Probably a gradual bankruptcy procedure will be drawn up for the bank. I see no other explanation."

As reported, Parex banka posted a pre-audit loss of LVL 107.5 million last year. The bank's loan portfolio was LVL 1.45 billion at end-2009, deposits at the bank stood at LVL 1.54 billion, total assets – LVL 2.48 billion, capital and reserves – LVL 156.5 million.

Last week the government decided to deposit another LVL 102 million at Parex banka so that the bank would be able to repay loans to syndicated lenders.

The Latvian Privatization Agency holds 73.4% of Parex banka shares, and 22.4% of the bank's shares belong to the European Bank for Reconstruction and Development.