RIGA - The government has approved Parex Bank's plan for reconstruction at an extraordinary Cabinet meeting. The strategy and reconstruction plan was then submitted to the European Commission for approval.
Parex Bank's restructuring plan, put together by banking experts and the bank's management, said the bank hopes to become profitable in 2011.
"We hope to have these changes in effect within three to four years and possibly less as the strategic banks assisting us come with their own financing and we'd be able to pay back this assistance faster," Parex Bank President Nils Melngailis told reporters after the meeting.
The restructuring plan outlines several key goals of the bank 's namely to rename the bank and to direct its focus on the Baltic market.
"We need to centralize support functions and insure that they give services to those who work with clients according to market principles," said Melngailis.
Parex Bank will still offer its usual services 's which is now chiefly corporate services, private capital management and private deposits. The bank also plans to provide small business loans, but with a new, cautious lending policy.
Melngailis explained that the way the bank had been previously organized led to some of their current troubles and intra bank competition.
"The bank was largely organized around products and the situation was that one client had to go to many different banking departments to find what they needed, which was not good for the client when they had to talk to more than one person about the same thing," said Melngailis.
The bank will focus on maximum diversification of depositors and its financial resources. The bank will be renamed, and the new strategy will come into effect in September 2009.
The restructuring plan predicts that the bank will earn 37 million lats (52.6 million euros) in profit in 2011. The projected losses for 2009 are foreseen to be around 60 million lats, and 25 million lats in 2010.
The plan also mentions that the bank will require even more state support.
A deposit by the State Treasury guarantees the bank's eurobonds worth 123 million euros. The bank is optimistic and foresees that all the restrictions on the its operations will be lifted in July 2009.
Parex Bank's restructuring plan does not entail finding a strategic investor for the bank or selling the bank.
The plan states that the bank will attempt to repay the government funds and return to the private sector as soon as possible. It also says the restructuring of the bank could be brought to a close at the beginning of 2010, when it will be followed by privatization and further strategic development.
"Our short term goals are to help clients live through the next 18 months, which is when we think the situation may get better. Corporate clients will have problems with profits, and here we're developing a special unity to work with clients who have fallen upon hard times," explained Melngailis.