European Commission - Press release
State aid: Commission grants temporary approval to Latvian support for Latvian Mortgage and Land Bank and opens in-depth review into the measures for the bank's transformation
Brussels, 26 January 2012 - The European Commission has granted a temporary clearance of the Latvian support measures needed for the phasing out of commercial activities of the Mortgage and Land Bank (MLB) whilst opening an in-depth investigation to assess whether aid to MLB is in line with EU state aid rules.
The Commission temporarily approved under the state aid rules the aid in favour of MLB, consisting of a recapitalisation of LVL 70.2 million granted in March 2010, of an additional recapitalisation measure, a standby liquidity facility, guarantees to international creditors of the commercial segment of MLB and the liquidity support for the solvent liquidation of the bad assets.
"MLB is being transformed from a mixed development and commercial bank into a pure development bank, while phasing out its remaining commercial activities. The Commission is supporting the bank in this process as it will improve its focus on the development mission. The Commission yet needs to gather all the necessary information to ensure that the aid granted to MLB's commercial activities is compatible with the Commission's state aid rules on restructuring aid. We are continuing our constructive dialogue with the Latvian authorities and I am confident that we will arrive at a satisfactory outcome", said Commission Vice-President in charge of competition policy Joaquín Almunia.
In particular, the Commission needs more certainty regarding the milestones envisaged for the sale of the activities, as well as further information regarding the liquidation of the activities that cannot be sold in the short-term. The aid to the bank has to be limited to the minimum, sufficient measures have to be put in place to limit the distortion of competition and MLB's economic activities, if continued after the sale, must be viable.
As for the development activities of the bank, the Commission will further examine how it is warranted in practice that the MLB's development activities are in line with State aid rules. In its assessment, it will aim to ensure that the bank does not provide lending which could be also obtained from the commercial banks.
The opening of an in-depth investigation is common for complex cases in the banking sector and does not prejudge the final outcome of the investigation. It will allow the Commission to hear the views of stakeholders and assess whether MLB's transformation process into a pure development bank, including the sale of its commercial assets, is in line with the Commission's guidance on state aid to financial institutions (see IP/08/1901, IP/09/322 and IP/09/1180).
MLB was established by the Latvian Government on 19 March 1993 as a state-owned bank. As of 30 June 2011, it had a market share of around 3.6 % in terms of total assets and ranked eighth among banks operating in Latvia. MLB has a dual role, operating both as development bank and as commercial bank. In recent years the bank has become the main channel for state-supported lending programmes such as SMEs, business start-ups, agriculture and rural areas and business-activities of socially vulnerable groups of the population. At present, the bank is in the process of phasing out its remaining commercial activities so as to become a pure development bank.
In 2009, MLB benefitted from two recapitalisation measures in the total amount of €102.48 million which were approved by the Commission on 19 November 2009 (see IP 09/1742). In 2010, the bank received a third recapitalisation in the amount of €100 million which is currently under assessment.
On 20 July 2010, the third Supplemental Memorandum of Understanding was signed between the EU and Latvia so as to make available to Latvia medium-term financial assistance (see IP/10/991). Among other issues, the elaboration and implementation of MLB's restructuring and the sale of the bank's commercial part were included as the specific conditions of the programme.
A summary of today's decision will be published in the EU Official Journal, inviting interested third parties to comment within one month.
The non-confidential version of the decision will be made available under the case number SA 30704 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