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Rigas Komercbanka plots a comeback

  • 1999-04-01
  • Anastasia Styopina
RIGA - A Riga district court declared Rigas Komercbanka insolvent March 23, but the bank's management and shareholders are still hoping to revive Latvia's fifth largest bank.

The day after the court announced its verdict, Rigas Komercbanka submitted its revitalization proposals to Gundars Cers, who was appointed bank administrator.

In order to restart operations, Komercbanka will have to restructure its liabilities and try to find a strategic investor. Its shareholders will have to raise its equity capital to 2 million lats ($3.45 million) and cover losses on the Russian market that amount to at least 30 million lats.

"RKB management believes that resumption of the bank's activity is practical, and all parties concerned will be able to rehabilitate successfully one of the oldest Latvian commercial banks," wrote Valdis Jalinskis, an RKB manager, in a statement.

To resume operations, Komercbanka needs the support of its major shareholders, creditors and the Bank of Latvia. In addition, the bank seems eager to get more help.

"Within the recent week, negotiations with creditors and shareholders have advanced and all parties are willing to find the solution acceptable for everybody," Jalinskis wrote.

The Bank of Latvia and the European Bank for Reconstruction and Development, RKB's major shareholder, have announced their readiness to help the bank to re-open its doors.

"Despite that Rigas Komercbanka was declared insolvent, we are not giving up. We are continuing to work with the government, the central bank and the largest creditors to identify possible solutions," said EBRD First Vice President Charles Frank.

"We may not succeed, but we'll try. It's going to be very hard to succeed, there is not much time left, but I can assure you that none of us will give up," Frank said at March 24 conference.

The revitalization plan should be submitted to the Bank of Latvia in a month. If the shareholders and creditors fail to agree on a possible solution by that time, one of Latvia's oldest commercial banks will have to be liquidated.

Frank announced that the EBRD is ready to write down its equity to zero and inject new capital in Komercbanka on the same terms as a strategic investor. Meanwhile, EBRD will reinstate its credit line of $9 million.

Besides negotiations with its shareholders, RKB is also eyeing a potential strategic investor who would help the bank to boost its capital. Frank admitted, however, that the bank must restructure its liabilities first, since investors will not sink money into a substantially insolvent bank.

Komercbanka's two syndicated lenders represent 14 different banks. Each bank has little to lose if Komercbanka is declared bankrupt, and they may not want to put in time and resources to revitalize the bank since strategic investment in the Baltic region is not their goal, Frank said.

Before the central bank stopped RKB operation, it was ready to invest 15 million lats in Komercbanka to save it out of troubles, and it's determined to keep this promise.

"Taking into account that Komercbanka is one of the important Latvian banks, the central bank was ready to become one of RKB shareholders and invest 15 million lats," said central bank spokesman Edzus Vejins. "No negative decision has been made, and we are ready to return to the negotiating table."

The Bank of Latvia stopped RKB operations March 7 because it was unable to settle its debt obligations and its shareholders and creditors failed to increase the bank's equity by the central bank-imposed March 5 deadline.

The central bank criticized EBRD for not stopping Komercbanka from making risky investments in the Russian market. More than 27 percent of Komercbanka's assets were invested in Russian treasury bills and federal and municipal bonds.

Total deposits of Rigas Komercbanka in Russia amounted to almost 23 million lats, and losses not covered by its equity could be as high as 30 million lats.

The EBRD refuted criticism, and Frank said that EBRD has warned Komercbanka's management several times to decrease exposure to the Russian market, but this advice was ignored.

While Komercbanka's management is trying to revitalize the bank, all the deposits are frozen. The bank has enough capital to pay back compensations for deposits up to 500 lats, but these creditors will have to wait before Komercbanka's fate is sealed. Compensations could be paid if the bank is liquidated.