Rigas Komercbanka lives under a new name

RIGA - Riga District Court said Oct. 13 that Rigas Komercbanka, closed to walk-in business since March 7 when the Bank of Latvia suspended its operations, can reopen.

Bank officials say it will open, but under a new name, on Oct. 22.

Its new president announced Oct. 18 that the bank, based on Smilsu Street in Riga's financial district, will hang out a new shingle bearing Pirma Latvijas Komercbanka - First Commercial Bank of Latvia - or PirmaBanka.

"This bank is back and back to stay," said former Swedbank executive director Hakan Kallaker who has been confirmed by Latvia's central bank as the new bank's president. "I believe in this bank. I took this position not as a job but as a cause. We are in good shape with a strong shareholder in the Bank of Latvia."

The central bank capitalized debt worth about 18 million lats ($31.6 million) to help the bank back onto its feet.

PirmaBanka will almost immediately begin to entertain bids from German and Nordic banks who wish to be strategic investors and hope to close a deal by the new year, Kallaker said.

Depositors can reclaim up to 1,000 lats when the bank opens. A 50 percent penalty on withdrawals over that amount in effect for the first two months will then drop to 40 percent until the end of eight months when deposits can be taken out without penalty.

Kallaker conceded that there may be withdrawals at first, but that he believes confidence will return.

"Many clients have said they are willing to come back, and after some period we hope to regain the majority of them," he said.

Bank of Latvia's governor, Einars Repse, said that the bank's recovery is good for Latvia because it will show that Latvia's stability can weather shocks like the Russian economic crisis.

"This will enhance the trust in our banking system. This is the first successful rehabilitation of a bank in Eastern Europe," he said.

The bank has brought its liabilities current and has assets greater than remaining debt, Gundars Cers, a court appointed administrator, and Bank of Latvia told the court.

"Riga Komercbanka's problems were temporary. It has a history of good operation and has overcome its problems," Einars Repse, the central bank's governor told bankers at an international banking conference in Riga. "That's why Bank of Latvia is helping it."

The bank has a long history in the context of Latvia's banking sector. It had been in business for four years before overexposure to Russian markets left the bank short of capital to provision against the exposure and meet its liabilities in early 1999.

Repse announced that Bank of Latvia will indeed give the bank a helping of cash as a loan, 18 million lats to increase its liquidity. The credit will be collateralized by shares. Bank of Latvia expects to sell the shares as a block to a single strategic investor before the end of 2000.

Currently, the banks equity capital is about 7 million lats. Its capital has gone up by about 42 million lats. The capitalized amount is about 23.5 million lats with the remainder in cash.

The head of Latvia's second largest bank, Parex Bank, congratulated the bank but said that Bank of Latvia's investment in rehabilitation of the bank may create a conflict of interest.

"The major shareholder is Bank of Latvia. Rigas Komercbanka's largest shareholder supervises its own bank and my bank too," said Kargin, president of Parex.

RKB, with deposits in Russia amounting to almost 23 million lats, had 27 percent of its assets blocked when Russian GKOs became worthless. Latvian banks overall had a greater exposure to Russian GKOs, municipal bonds and currency speculations than banks in Estonia and Lithuania. Latvia's banks had to write over large provisions that required them to take heavy losses. Closure of Rigas Komercbanka bore out analysts predictions that banks hurt by Russia's financial crisis in Latvia would not be limited to Victorijas Banka and Kapital Banka, smaller banks which closed their doors in late 1998.

Suspension of operations on March 7 occurred when shareholders and investors, including two syndicated lenders, Fugii Bank and Landesbank Schleswig-Holstein did not meet a March 5 deadline to raise the bank's equity by $20 million to $25 million to meet the central bank's standards.