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Brussels to probe Latvian bank sale plans

26 January 2012, 16:23 CET
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(RIGA) - The European Commission said Thursday it was launching a probe into state support for Latvia's Hipoteku un Zemes Banka (Mortgage and Land Bank, MLB) ahead of an eventual sell-off of its commerical assets.

In a statement released in Brussels, the Commission said it was "opening an in-depth investigation to assess whether aid to MLB is in line with EU state aid rules."

Brussels wants more certainty about plans to sell off assets, as well as further information regarding the liquidation of assets that cannot be sold in the short-term.

Warning that "aid to the bank has to be limited to the minimum" the Commission insisted that "sufficient measures have to be put in place to limit the distortion of competition and MLB's economic activities, if continued after the sale, must be viable."

In the meantime, the Commission granted what it called "temporary clearance" for 100 million euros' worth ($132 million) of support the Latvian state has given to LHZB since March 2010.

Further explaining the Commission's move for a detailed probe, EU Competition Commissioner Joaquin Almunia noted "MLB is being transformed from a mixed development and commercial bank into a pure development bank, while phasing out its remaining commercial activities...

"The Commission needs to gather all the necessary information to ensure that the aid granted to MLB's commercial activities is compatible with the Commission's state aid rules on restructuring aid," he said in the Thursday statement.

MLB was founded by the Latvian government in 1993 as a state-owned bank.

More recently, it had become the main channel for distributing state-supported lending programmes, but has also maintained a commercial wing -- a combination of public and private sector functions that has been sitting uneasily with European competition legislation since Latvia joined the European Union in 2004.

The bank is the eighth-largest in the country of three million in terms of assets and accounts for around 3.6 percent of the banking market. It also has numerous prominent political figures among its clients, including central bank governor Ilmars Rimsevics and the wife of Prime Minister Valdis Dombrovskis.

In 2010, MLB lost more 90 million euros according to its audited accounts.


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