Latvian bank Parex makes 310-million-euro loan payment

Feb 12, 2010, 13:20 GMT

Riga - Parex bank, the Latvian financial institution that brought the Baltic state to the verge of bankruptcy when it was nationalized in 2007, continued its revival Friday by paying off 310 million euros (420 million dollars) of an outstanding syndicated loan.

The payment is the second of three tranches of a 775-million-euro syndicated loan. A final payment of 232 million euros is due to be made in May 2011.

'As the situation at the bank has become more stable and liquidity has improved, the bank was able to cover most of the sum - 165 million euros, while the state treasury provided the remaining 145 million euros as a term deposit,' a statement from Parex said.

The near-collapse and government rescue of Parex in 2007 triggered a severe financial crisis in Latvia, which combined with the credit crunch and global economic crisis to create one of the most dramatic recessions in recent history.

Parex remains the largest home-grown bank in a Baltic banking scene dominated by Scandinavian financial groups. Its sudden fall from grace shocked the region and took the Latvian state to the verge of a default when the government chose to pump in more than a billion dollars to stop the bank's collapse.

Latvia turned to the International Monetary Fund (IMF) and other international lenders including the European Union and World Bank for a 7.5-billion-euro bail-out in the wake of the crisis at Parex.

Prominent local businessman Nils Melngailis was put in charge of the bank after nationalization and has improved Parex's prospects by revising deals with syndicated lenders and persuading the European Bank of Reconstruction and Development (EBRD) to take a quarter stake in the bank.

Parex was founded in 1992 and spent years as a high-flying bank with an ability to attract sizable deposits from rich Russians as well as local clients.

But founders Valery Kargin and Viktor Krasovickis sold their majority stake to the Latvian state for just 1 lat (2 dollars) each when the credit crunch struck.