Brussels, 11th May 2009
The European Commission has approved, under EC Treaty state aid rules, amendments to the original recapitalisation measure (Tier 2 capital) of the Latvian JSC Parex Banka, initially approved on 24 November 2008 (see IP/08/1766). Under the proposed changes, Latvia would acquire newly issued ordinary shares and subordinated term debt. The Commission found that the amendments were in line with its Communication on the recapitalisation of banks during the crisis (see IP/08/1901). In particular, the measure is subject to an adequate remuneration, does not exceed the minimum necessary and is limited in time. The amended support package for JSC Parex Banka is therefore compatible with Article 87.3.b of the EC Treaty, which allows aid to remedy a serious disturbance in the economy of a Member State.
Competition Commissioner Neelie Kroes said: "The changes to Parex Banka's recapitalisation were necessary to adapt to a modified financial and regulatory environment in Latvia. This decision demonstrates again that the state aid rules are sufficiently flexible, even for rapidly evolving markets."
Due to the continued effects of the financial crisis and to recently implemented regulatory requirements in Latvia, JSC Parex Banka's capital and liquidity ratios deteriorated. Therefore, it became necessary to review the bank's recapitalisation, envisaged in November 2008, and on 29 March 2009 Latvia notified a series of amendments to the Commission.
In particular, Latvia proposes to strengthen the bank's capital basis with the aim to achieve a capital adequacy ratio of 11% by issuing ordinary shares, qualifying as Tier 1 capital and subordinated term debt qualifying as Tier 2 capital. The state would purchase these against adequate remuneration.
The Commission's investigation found that the changes are in line with the conditions set out in its Guidance Communication on the recapitalisation of banks during the crisis (see IP/08/1901).
In particular, the remuneration of the Latvian state for the bank's recapitalisation would be based on the European Central Bank recommendations, taking into account the real costs of state treasury loan funds, an adequate risk premium and a fee. Moreover, the Latvian supervisory authority confirmed that the value of the capital injection corresponds to the minimum necessary to keep JSC Parex Banka in business until it can restructure. Furthermore, the state committed to exit JSC Parex Banka's Capital in the medium term. Finally, Latvia remains committed to submitting a restructuring plan for the bank shortly.
The Commission therefore concluded that the amendments were necessary and adequate to restore market confidence in JSC Parex Banka.
The non-confidential version of the decision will be made available under the case number N 189/2009 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.