The first half of 2010 has presented new challenges for the Parex Bank.  The restructuring process that was prepared by the international financial consultant Nomura International plc was launched and implemented in a purposeful way.  The Parex Bank has demonstrated responsible and professionally balanced work during very complicated economic conditions, and these efforts have ensured that the bank can develop further in the interests of all of its shareholders.

In the middle of this reporting period, on March 23, the Cabinet of Ministers approved the restructuring plan for the Parex Bank, and on May 31, it was submitted to the European Commission for its approval.  The plan spoke to the splitting off of certain Parex Bank assets to create a new bank with a stable financial foundation so that it might become more successful in attracting investors and repaying the state’s investment as quickly as possible.  The remaining bank, the Parex Bank, will be able to sell its assets on the market in a longer period of time.  Its job is to ensure maximum returns on the state’s investments.

During the first half of 2010, the Parex Bank received permission from the International Monetary Fund and the Finance and Capital Markets Commission (FCMC) to increase credit limits for the bank’s largest and most loyal corporate clients.  It also concluded an agreement with the European Investment Bank on EUR 100 million in credit resources so that loans could be issued to small and medium enterprises.  A trade financing agreement has been concluded, too, with the European Bank for Reconstruction and Development (EBRD).

On May 5, 2010, the Parex Bank concluded an agreement with the Bank of Latvia on the premature repayment of a loan of LVL 117.6 million.  The decision was based on an increase in deposits at the Parex Bank, stability in the currency market for the lats, and the fact that the bank’s liquidity indicators substantially exceeded stated regulations.

The bank’s liquidity has improved during the reporting period, exceeding 60% as of June 30 of this year.  Deposit volumes at the bank continued to increase during the half-year, and data show that total deposits at the end of June exceeded LVL 1 billion, not including deposits from the State Treasury. Since the beginning of the year, deposits at the Parex Bank and its group have increased by LVL 188.5 million and 211.5 million respectively. In terms of interest on term deposits, the Parex Bank has paid more than LVL 59 million to the State Treasury since December 2008, doing so in accordance with contractual obligations.

On February 12, 2010, Parex repaid EUR 310 million to providers of its syndicated loans.  Because of the improved liquidity of the bank, it itself could cover most of that sum – EUR 165 million.  The remaining EUR 145 million came from the State Treasury in the form of a term deposit. 

The lending portfolio for the bank and the group on June 30, 2010, amounted to LVL 1.38 and 1.57 billion respectively, with assets of LVL 2.28 and 2.44 billion. Total equity at the end of the reporting period was LVL 124,5 and 100 million respectively. The most important shareholder, the Latvian government, provided aid to the Parex Bank and ensured additional necessary capital.  On February 23, 2010, the Cabinet of Ministers approved an increase in the bank’s share capital of LVL 31.5 million.  The increase occurred on February 26 via capitalisation of the relevant sum from the deposits that had been made by the State Treasury.

The bank and the group concluded the first half of this year with total net losses of LVL 61.7 and 73.0 million respectively, while losses before provisions, depreciation and taxes amounted to LVL 21.3 and 22.6 million.  Financial results are still being influenced seriously by the provisions that the bank and group have had to make as a result of a drop in asset value of LVL 47.8 and 54.2 million respectively.

During the reporting period, in comparison to the same period in 2009, the Parex Bank cut administrative spending by 20% (LVL 5.6 million) - communications and IT costs by LVL 0.5 million, personnel costs by LVL 4.6 million, etc.  Some costs were reduced by outsourcing services.  Building management at the bank’s branches, for instance, now costs 80% less, while spending on office and housekeeping supplies has declined by 22%. 

About Parex banka:

Parex banka is structured as a resolution bank whose main task is to maximize recovery of the investments made by the State. In order to achieve its goals, activity of Parex banka is focused on effective restructuring of loans and securing of overtaken loans the majority of which are real estate.  Along with planning purposeful increasing of the value of assets, Parex banka also performs professional real estate management and as the situation becomes stable in real estate segments, it will sell them at the best price possible for the benefit of all shareholders.

Additional information:
Marita Ozoliņa-Tumanovska
Head of Communications and Marketing
Tel.+371  67779142 or 29287169
e-mail: Marita.Ozolina@parex.lv