The Latvian government announced on Saturday the surprise takeover of the country's second largest bank, Parex, as the global financial crisis hit the small Baltic state where economic growth has fallen sharply.
Prime Minister Ivars Godmanis said after a late night government meeting that if necessary the former Soviet state, a member of the European Union and NATO since 2004, would approach the International Monetary Fund or the EU for aid in the future.
The government said it was forced to take 51 percent of Parex, one of the first Latvian banks to be formed after the collapse of the Soviet Union, as it hit problems in the global liquidity crunch.
"We have to do everything in order not to allow any troubles, not only for concrete banks which are important to the system due to their size in Latvia, but for the banking system as a whole," Godmanis told reporters.
He saw no need for action to support other banks apart from Parex, which had assets of 3 billion lats ($5.42 billion).
Asked if he saw a need for funding from the IMF or the EU, Godmanis said: "We have looked carefully at questions about capital strengthening and about liquidity. If there will be such a need, we will take that step."
Central Bank Governor Ilmars Rimsevics saw no need for outside help. "In the actions of the government at the moment there is no need for such a thing (IMF or EU aid)," he said.
The takeover of Parex is to be carried out by the state-owned Mortgage and Land Bank, Godmanis said.
Finance Minister Atis Slakteris said the 51 percent stake would cost a symbolic one lat ($1.81) each to be paid to the two main shareholders, Valery Kargin and Vladimir Krasovitsky.
They are two of the country's leading businessmen of Russian origin in a country where a third of the population speaks Russian. Another 34 percent of the bank would be given over to
Mortgage and Land Bank as collateral.
Another 15 percent of the shares would remain with minority shareholders. The government said its actions would allow Parex to continue its operations and retain depositors' trust.
The bank has syndicated credits to be paid this year and next and Slakteris said he hoped the presence of the state as a shareholder would allow them to be refinanced, something Parex
was having problems doing on its own.
Second largest in assets, Parex is the largest bank owned locally in a sector where Nordic banks have made inroads.
Swedbank of Sweden is largest in terms of assets, followed by Parex, then SEB, also Swedish. Nordic bank Nordea and DNR Nord, half-owned by Norway's DNB NOR, also are present.
Latvia and Baltic neighbours Estonia and Lithuania have so far been spared the worst of the global financial crisis, in which larger Western counterparts have poured billions into the bank system and Hungary turned to the IMF.
But the credit crunch alongside the financial turmoil has meant their own economies have turned sharply worse.
Latvia's economy fell 4 percent in the third quarter and analysts expect further shrinkage ahead.