Parex banka to Give Up its Credit Institution License
Today the Cabinet of Ministers supported the model for Parex banka’s further activity which provides for the Bank’s change of status and resignation from its credit institution license. If Parex banka’s shareholder meeting adopts this decision, the Bank is going to resign from its credit institution license and, in accordance with the restructuring plan approved by the European Commission (EC), it will continue processing assets in order for the State to cover the maximum amount of funds invested in bailing out the Bank. The new functioning model will be introduced after a permit is received from the Finance and Capital Market Commission (FCMC).
The government assessed several possible models for Parex banka’s further activity, including maintaining the Bank’s status, however it was concluded that the most suitable and advantageous option would be restructuring and giving up its credit institution license. This is in line with the goals set forth in the restructuring plan and this enables the State to undertake additional liabilities in the future for meeting regulatory requirements. During the decision making process on the change of status, the fact that Parex banka does not function as a classical bank since August last year, i.e. it does not provide lending services and does not accept deposits from clients, was taken into consideration. Parex banka’s activity is mainly related with asset management since last August therefore, correspondingly to the tasks determined in the restructuring plan, maintaining the Bank’s status is not necessary in order to meet the restructuring plan’s goals. The fact that Parex banka's restructuring plan approved by the EC did not provide for full restoration of the Bank's activity was also taken into account.
Parex banka’s change of status will enable to cut costs related with maintaining its credit institution license. Giving up the license means that meeting requirements for capital sufficiency will no longer be binding for Parex banka and the Bank will no longer have to pay the financial stability duty to the FCMC and make contributions into the deposit guarantee fund. Thus the government will not need to perform further capitalization of State investments which was provided in the restructuring plan in order to ensure the Bank’s activity in accordance with the requirements applied for credit institutions. Similarly the Cabinet of Ministers resolved that capitalization of the funds invested by the Ministry of Finance will take place this year which means investing 19.8 million Lats into the Bank’s share capital. This sum is significantly smaller than the one planned initially. The Bank’s share capital is not increased at the budget expense, it takes place by means of capitalizing the deposits made by the Ministry of Finance instead. Besides, the State does not plan to make any new investments in Parex banka in the future.
The Bank’s shareholder meeting is yet to pass a decision on the Bank’s restructuring. If shareholders resolve to support restructuring, the Bank will have to give up its license in the beginning of the next year and settle liabilities with holders of private deposits. The Bank has already settled its liabilities toward syndicated lenders in the amount of 164 million Lats this year without additional support from the State; this was one of the restrictions in the Bank's change of status. The Bank possesses sufficient amount of funds in order to be able to perform its liabilities and continue its activity without a credit institution license. The structure of Parex banka’s assets and liabilities will be preserved after its change of status. The change of status will not bring along any changes in liabilities for the Bank's clients and, just like previously, the Bank will continue recovering issued loans and ensure maintenance and selling of assets. The composition of shareholders will not change upon the restructuring of Parex banka. Presently the split-up of Parex banka’s shareholders is as follows: LPA – 83.07%, EBRD – 13.61% and 3.32% – minority shareholders.
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