RIGA - The European Union's (EU) competition regulator announced July 29 that it has launched an investigation into the aid package that was provided by the Latvian government for troubled state-controlled Parex Bank, reports news agency LETA.
The regulator, the European Commission, said its inquiry was aimed at establishing whether the aid, combined with a government restructuring plan, would help ensure the long-term future of the bank.
"The commission has to carry out an in-depth investigation into the aid package for Parex to determine whether it is accompanied by a realistic project to address the problems that led to the current situation," EU Competition Commissioner Neelie Kroes said, adding "This way, we ensure legal certainty for all actors concerned and allow interested third parties to give their views."
The commission will also look at whether the plan avoids creating market distortions and at how the measures might impact competition, reports Bloomberg.
Latvia notified the commission in May of the plan, which includes a new business strategy for the bank, support measures to boost liquidity, extended state guarantees with possible new guarantees for further funding. The government took over Parex on Nov. 8, 2008 injecting about 200 million lats onto its balance sheet.
The commission approved an initial aid package last November, which consisted of state guarantees covering existing and new loans, a state one-year deposit to support the bank's liquidity needs and subordinated loans to strengthen the bank's capital base.
The ratings agency Moody's Investors Service July 30 reaffirmed the previous 'B2' long-term rating for the bank, with a 'stable' outlook. Moody's says that a stable outlook was given because of its consolidated capital base and new shareholder structure, as well as further support from shareholders, including the European Bank for Reconstruction and Development.
