The European Commission has concluded that Latvia's project to establish a financial institution (the Latvian Single Development Institution - SDI) is compatible with EU state aid rules. The SDI will facilitate access to finance for small and medium sized enterprises (SMEs) and other players that face obstacles to raise financing in the market. The Commission found that the new institution would address such market failures without unduly distorting competition in the Single Market.
In December 2014, Latvia notified to the Commission the scope of activities of the SDI, which was established as a result of the recent merger of three State-owned institutions – Altum (the former Mortgage and Land Bank), the Latvian Guarantee Agency (LGA) and the Rural Development Fund (RDF). These institutions had been providing various forms of financing to the Latvian economy.
Latvia plans to inject more than € 512 million of capital from state resources into the SDI for the period 2015-2022. The SDI will use this budget to act within a strictly defined remit, based on identified market failures. It will in particular offer financing – such as loans, guarantees, equity injections or grants – mainly to SMEs, start-ups, mid-cap and micro-enterprises, but also to individuals and companies active in the agricultural sector. The SDI will also act as a financial intermediary and channel funds for programmes and projects co-financed by international financial institutions, such as the European Investment Bank or the European Bank for Reconstruction and Development.
The Commission assessed this measure under EU state aid rules, which allow Member States to grant aid to support the development of certain economic activities. The Commission found in particular that the SDI will intervene only when financing is not readily available in the market. This will avoid that private investment is crowded out by the state funding. Moreover, the SDI's activities are subject to specific criteria that ensure they do not unduly distort competition in the Single Market and are fully in line with EU state aid rules.
Before the merger, the three institutions (Altum, the LGA and the RDF) were also involved in other activities that are not directly related to the fundamental objectives of a development financial institution. The Latvian authorities have committed that the SDI will cease, wind-down or sell these legacy activities that are outside its approved scope as soon as possible and by 31 December 2018 at the latest.
Given that the market for SME financing and in particular the scope of the market failures may evolve, the Commission has granted approval until 31 December 2022. This may be prolonged, following a reassessment. If in the future the SDI were to be given further responsibilities outside the agreed remit, these may need to be notified to the Commission for approval.
Today's approval of the scope of activities of SDI is also the last step in the restructuring of Latvian bank MLB. MLB originally had a dual role, operating both as development and commercial bank. Between 2009 and 2013, MLB benefitted from various State support measures, including recapitalisations, liquidity support an guarantees. The 2011 transformation plan agreed between Latvia and the EU, provided that MLB would be stripped of its commercial activities and transformed into a pure development entity. In July 2013 the European Commission found the support measures granted by Latvia for this transformation to be in line with EU state aid rules. In 2014, after the sale of commercial part, MLB's remaining active development part was renamed Altum.
The non-confidential version of the present decision will be made available under case number SA.36904 in the State Aid Register on the 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.