Latvian Government Splits State-Owned Mortgage Bank After Delays

Latvia’s government agreed to split state-owned Hipoteku un Zemes Banka AS into a development bank and sell its commercial portfolio after delaying the decision as the country’s international loan program comes to a close.

The government today gave the Finance Ministry until Nov. 15 to create an advisory board for the process, the ministry said in an e-mailed statement.

Latvia turned to a group led by the European Union and the International Monetary Fund for a 7.5 billion euro ($10.3 billion) loan in 2008 after rescuing Parex Banka AS, the Baltic country’s second-biggest lender. The government also pumped capital into Hipoteku as investors pulled money out of emerging markets during the first global recession since World War II.

The Baltic country had repeatedly delayed splitting the bank due to a lack of political consensus, the IMF said in a staff report in June. The government submitted a plan to the European Commission on April 15 after “long delays,” the IMF said.

Hipoteku, which the EU barred from commercial lending as a condition for state aid, had a net loss of 63 million lati ($130 million) last year, or about 0.5 percent of Latvia’s gross domestic product, following a loss of 54 million lati in 2009. The bank reported a profit of 3.2 million lati in the first six months of this year.

The government’s investment in Hipoteku is bigger than the bank’s remaining capital, said Martins Bicevskis, a former state secretary for the Finance Ministry, in an interview with the Riga-based magazine Ir.

Europe will just not allow us to sell the bank with all the state aid,” he said in the interview published May 26.

To contact the reporter on this story: Aaron Eglitis in Riga at

To contact the editor responsible for this story: Balazs Penz at

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