RIGA, Latvia (AP) - Latvia's government has decided to take over the nation's No. 2 financial institution after the bank ran into a liquidity crisis, an official said Sunday.
The government decided late Saturday to take a 51 percent stake in Parex Bank, the Baltic state's second largest bank by total assets, based on data that indicated the bank was headed toward insolvency, said Krists Leiskalns, press adviser to Prime Minister Ivars Godmanis.
On Saturday, Godmanis explained that Parex was functional but in need of liquidity. He also said the government had faced a choice of either taking control of the bank or allowing it to enter bankruptcy.
"It is important to act now before the situation became too bad," said Leiskalns, adding that Parex was too big to allow it to fail.
He said it wasn't necessary to rescue any of Latvia's other 25 banks at the moment, but he didn't exclude the possibility in the future.
The government bought the majority stake in Parex for 2 lats ($3.70). Another 34 percent stake in the bank will be held as collateral by the state-owned Hipoteku Bank.
News of the nationalization was another blow to Latvia's deteriorating economy. On Friday, the country's statistics office announced that gross domestic fell 4.2 percent year-on-year in the third quarter. By contrast, third-quarter annual growth in 2007 was 10.9 percent.
Latvia's economy has entered a period of deep recession after three years of stellar growth, when it led all EU members in gross domestic product growth.
Parex Bank was unique in both Latvia and the Baltic states in that it was homegrown. Founders Valery Kargin and Viktor Krasovitsky established the bank in 1992, one year after Latvia split from the Soviet Union and achieved independence.
A majority of the banking industry in the Baltic states of Estonia, Latvia and Lithuania are owned by Scandinavian financial institutions.
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