Latvia bails out 2nd largest bank as crisis hits

By Patrick Lannin

RIGA (Reuters) - The Latvian government announced on Saturday the surprise takeover of the country's second largest bank, Parex, as the global financial crisis hit the small Baltic state where economic growth has fallen sharply.

Prime Minister Ivars Godmanis said after a late night government meeting that if necessary the former Soviet state, a member of the European Union and NATO since 2004, would approach the International Monetary Fund or the EU for aid in the future.

The government said it was forced to take 51 percent of Parex, one of the first Latvian banks to be formed after the collapse of the Soviet Union, as it hit problems in the global liquidity crunch.

"We have to do everything in order not to allow any troubles, not only for concrete banks which are important to the system due to their size in Latvia, but for the banking system as a whole," Godmanis told reporters.

He saw no need for action to support other banks apart from Parex, which had assets of 3 billion lats (3.5 billion pounds).

Asked if he saw a need for funding from the IMF or the EU, Godmanis said: "We have looked carefully at questions about capital strengthening and about liquidity. If there will be such a need, we will take that step."

Central Bank Governor Ilmars Rimsevics saw no need for outside help. "In the actions of the government at the moment there is no need for such a thing (IMF or EU aid)," he said.

The takeover of Parex is to be carried out by the state-owned Mortgage and Land Bank, Godmanis said.