State's stake in Krajbanka on the block

The government of Latvia, the last Baltic state to hold assets in the banking sector, has approved the terms for privatizing its remaining one-third stake in Latvijas Krajbanka.

Analysts applauded the decision, as it demonstrates the government's willingness to jettison its remaining stakes in public companies and will lead to better growth prospects for the bank, the country's ninth largest financial institution in terms of assets.

According to the government's plan, a majority of the state-owned stake – 25.01 percent – will be sold as a single block for cash, which, according to Latvijas Krajbanka representatives, will ensure that the bank gets a serious investor who will make the required investments.

Latvijas Krajbanka, the oldest commercial financial institution in Latvia, is a strong retail bank with over 20 branches located through the country. It also provides service to more than 91 percent of the privatization certificate accounts in Latvia.

Uldis Cerps, chairman of Latvia's Financial and Capital Market Commission, said state participation in the banking sector was quite low and the move was the fulfillment of a promise made by the government.

"The state currently owns 100 percent of Latvijas Hipoteku un Zemes Banka (mortgage and property bank), and the remaining of Latvijas Krajbanka had to go," he said.

"The bank is in a clear, transparent situation, with financial results made available to the public for more than four years," said Cerps.

However, he added that as far as the market is concerned the appearance of a strategic investor at Latvijas Krajbanka "will not increase competition, as it is already strong in the banking industry."

About a third of the bank's shares are currently held by the Ventspils-based companies Ventbunkers, Ventamonjaks and Kalija Parks.

Private investors hold the remaining third, including Ventspils Mayor Aivars Lembergs.

Modris Sprudzans, head of Latvijas Krajbanka's communication department, said that the bank needed a strong investor in order to follow through on its strategic development plan until 2007.

"Currently, shareholders have different views and interests, which makes it difficult to make important decisions necessary for the bank's strategy," he said.

Sprudzans said that privatization of the state stake would not affect the bank's clients.

The privatization proposal drafted by the Economy Ministry calls for a fourth of the bank's shares to be sold at an auction with a starting price of 1.81 lats (2.92 euros) per share, or 4.1 million lats for the entire 25.01 percent stake.

Latvian Privatization Agency head Arnis Ozolnieks approved both the state's proposed price and sale method as the auction is likely to draw considerable investor interest.

The other 7 percent of the state's stake will be sold to the bank's current and former employees at a price of 1 lat per share. A privatization reserve will be constituted with a fraction of the remaining shares.

Sprudzans confirmed that Latvijas Krajbanka was not likely to be listed on the Riga Stock Exchange since there would not be enough shares circulating on the open market and that the privatization of the state stake would not have consequences for the bank's clients.

Latvijas Krajbanka was founded in 1924 as Latvijas Pasta Krajkase (Latvian Post Savings) and finished 2002 with a profit of about 2 million lats. It was Latvia's ninth largest bank with total assets of 170 million lats at the end of last year.