The EBRD has approved a financial package for Parex Bank, Latvia, which consists of an equity investment for the acquisition of a 25% + 1 share of the capital and a subordinated loan of €22 million qualifying as Tier 2 capital alongside the Government of Latvia.
The investment is seen crucial to increasing confidence in the bank and thereby in the Latvian financial sector overall. EBRD’s participation is expected to add value and restore profitability through influencing the strategic direction of Parex Bank. It will enable Parex Bank to strengthen its balance sheet, restructure operations and refocus on lending to the real economy thereby providing access to finance for corporates and MSMEs in Latvia and in the other two Baltic’s economies. In the longer term, EBRD’s experience in privatisation will enhance the planned sale process to private investors.
The investment in Parex Bank offers the Bank an opportunity to assist the Government of Latvia in restoring confidence in the Latvian financial sector due to increasing difficulties which may undermine the achievements of building sustainable SME and micro lending to Latvian enterprises.
Transition impact will arise through increased availability of medium term funding to local SMEs as EBRD will add to the overall lending capacity of the banking sector in Latvia. This is crucial in view of severely diminished lending due to the loss of deposits and virtually non-existent international financial markets. Transition impact will also arise from promotion of competition in the banking sector overall.
Furthermore, due to its experience in sector restructuring as well as through participation in the strategic direction of Parex Bank, EBRD is uniquely positioned to support of Parex in implementing institutional changes, such as reorganisation, strengthening of management and the Supervisory Board.
EBRD’s experience in privatization is expected to contribute to the ultimate objective of the transaction to return Parex Bank to the private sector after successful restructuring.
Parex Bank is the second largest commercial bank in Latvia with 13% market share by assets. Parex Bank is focused primarily on retail and corporate lending, asset management and investment banking with its main operations in Latvia, Lithuania and in the CIS.
Subordinated loan of EUR 22 million.
EUR 104 million equivalent.
The project is screened FI as this project involves the provision of finance to a financial intermediary. Parex Bank has completed the Bank's Environmental Due Diligence Questionnaire and returned this to the Bank for review. In accordance with EBRD's Environmental Policy 2008, Parex Bank will be required to comply with EBRD's Performance Requirement 9 on Financial Intermediaries. This includes, inter alia, the implementation of environmental and social due diligence procedures, adherence to the Bank's Environmental Exclusion and Referral List and ensuring that clients comply with applicable national environment, health and safety standards. Parex Bank will also need to ensure that its human resource policies and practices comply with the Bank's Performance Requirement 2 on Labour and Working Practices. No environmental and social action plan is required for this project. Parex Bank will provide the Bank with an annual report on environmental and social matters.
EUR 44,800 of TC funds (EBRD funded) has already been provided for assistance with establishment of Loan Workout/Corporate Recovery Unit. In addition, a EUR 500,000 program for assistance in institution building and mentoring focusing on financial and risk management, corporate governance and product development will be provided.
Roberts Stugis, Senior Vice President, Finance
AS Parex Banka
Smilsu iela 3
Riga LV-1522, Latvia
Phone: +371 6777 8614
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