Brussels, 11/05/2009 (Agence Europe) - On Monday 11 May, the European Commission approved, the amendments to the original recapitalisation measure (Tier 2 capital) of the Latvian JSC Parex Banka, initially approved on 24 November. 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 (EUROPE 9790) and that 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”.
Given the deterioration of the bank's capital and liquidity ratios, Latvian authorities proposed amending the initial plan to strengthen the bank's capital basis 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. This remuneration would be based on the European Central Bank (ECB) recommendations, taking into account the real costs of state treasury loan funds, an adequate risk premium and a fee. Furthermore, the state committed to exit JSC Parex Banka's capital in the medium term and to submit a restructuring plan for the bank shortly. (A.B./transl.rh/rt)