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EBRD buys bank shares

  • 2009-04-22
  • Staff and wire reports

FRIENDLY FACE: EBRD head Thomas Mirow said the bank was willing to pour more investment into the Baltic banking and energy sectors.

RIGA - The European Bank for Reconstruction and Development (EBRD), which has previously agreed to invest more than 100 million euros in Latvia's stricken Parex Bank, has pledged to invest some 500 million euros in the Baltic states.
It has said the money will go toward the banking and energy sectors, and is in talks with another two banks on the possible acquisition of their shares.

Under a joint agreement signed on April 16, the EBRD acquired a 25 percent stake, totaling 59.5 million lats (84.2 million euro), and will provide a 22 million euro loan to Parex.
The entire 106.2 million euro investment has been underwritten by the Latvian government.
The deal means the Latvian government will have a stake of about 70.8 percent in Parex Bank 's down from its current 85 percent holding 's while minority shareholders will retain a 4.2 percent stake, down from the previous 14.86 percent stake.

The agreement was signed by Prime Minister Valdis Dombrovskis, EBRD President Thomas Mirow, Latvian Privatization Agency board chairman Arturs Grants and Parex Bank board chairman Nils Melngailis. It also gives the EBRD the right to be represented on the bank's supervisory board with a nominee director.
EBRD First Vice President Varel Freeman said the financial package, which has yet to receive approval from the European Commission, would help see Parex Bank through the most difficult time in its history.
"Our involvement would contribute to a return in confidence in the bank and in Latvia's financial sector generally," said Freeman.

"As a shareholder, the EBRD would be able to participate in the development and implementation of a strategic plan for the restructuring and refocusing of Parex' business activities," he said.

BIG PLANS

The move comes as EBRD announced plans to invest some 500 million euros through 2010 in the Baltic region's banking and energy industries.
The organization plans to increase its investment in Lithuania's banking and energy industries by as much as 100 million euros this year.

The bank now holds a 16 percent stake in Lithuanian bank Siauliu Bankas.
"We would be happy to further engage, indeed, in other banks in these countries; we would like to support the activities in the energy and energy efficiency field," Mirow told media in Vilnius following an April 17 meeting with Lithuanian Prime Minister Andrius Kubilius.
Parex Bank, the second largest bank in Latvia, has been severely affected by the economic downturn.
In 2008 it posted losses of 124 million lats, with the Latvian government nationalizing the bank to stave off its collapse.

Following the takeover, the cash strapped government was forced to turn to the International Monetary Fund and other international lenders for a 7.5 billion euro rescue package.
Meanwhile, the bad debt level of banks in Latvia increased to 3.4 percent of the total loan portfolio by the end of March, up from 2.1 percent at the end of 2008, the Financial and Capital Market Commission revealed on April 20.

On April 21, it was reported EBRD is considering buying a further 10 percent in capital shares from another two Latvian banks.
The identity of the banks in question has not been revealed.
According to the financial sector watchdog the share of the amount of credits with delayed payments of more than 90 days has climbed from 3.6 percent at the end of 2008 to 7.1 percent at the end of March.
Latvian banks' assets in March decreased 2.4 percent, or 542 million lats, according to the Financial and Capital Market Commission's data. The banks' assets contracted as a result of a decrease in banks' liabilities to monetary financial institutions and the Bank of Latvia.

The ERBD was set up in 1991 to help Europe's former communist nations evolve into free-market economies. In February it teamed with the World Bank and the European Investment Bank to provide up to 24.5 billion euros over two years in loans and investment to crisis-stricken Eastern Europe.