Rules say ‘no’ to use of reserves

RIGA - Parex Bank’s banking license means it cannot use its obligatory reserves to repay a syndicated loan, the Latvian central bank said, reports Bloomberg. “Parex Bank is a credit institution that has a bank license that is still in force,” the central bank said on April 21 in a statement on its Web site. “In accordance with the law, all credit institutions have to ensure implementation of the obligatory reserves.”

Parex, which no longer gives loans and holds non-performing assets, on April 20 asked the central bank and the bank regulator for permission to use 26 million lats (37.1 million euros) in obligatory reserves to make a final 164 million lats payment of a syndicated loan due May 5.

Latvia turned to a group led by the European Commission and the International Monetary Fund for a 7.5 billion euro bailout loan package after Parex collapsed in 2008. The government split Parex into an asset management company and created a new retail bank called Citadele Bank in preparation for the sale of both.

“Our mandatory reserves are calculated and accumulated largely on the basis of the bank’s liabilities toward the investments made by the Ministry of Finance and repayment of the syndicated loan,” Chairman Christopher Gwilliam said on April 20 in a statement to the Riga Stock Exchange. “Therefore, the use of these funds for repaying the loan is a logical step.”
The repayment of the syndicated loan is the final tranche due, after the payment of 775 million euros in credit was rescheduled when the state took over Parex.