Support granted by Latvia to Latvian Mortgage and Land Bank found in line with EU state aid rules

17-7-2013 — /europawire.eu/ — The European Commission has found support granted by Latvia for the transformation of the Latvian Mortgage and Land Bank (MLB) to be in line with EU state aid rules. In particular, the sale of MLB’s commercial assets and its subsequent exit from the commercial banking market will minimise the distortions of competition brought about by the state support.

Joaquín Almunia, Commission Vice-President in charge of competition policy, said: “MLB will no longer be active in the commercial banking field. This will minimise the distortions of competition resulting from the state aid it has received. Moreover, MLB’s transformation into a development bank turned out to be less costly for taxpayers than originally assumed”.

Since 2009, MLB benefitted from significant public support measures, including recapitalisations, liquidity support and guarantees. The Commission temporarily approved those measures for reasons of financial stability, while investigating their compatibility with EU state aid rules for banks during the financial crisis (see IP/09/1742) In January 2012, the Commission opened an in-depth investigation regarding these measures (see IP/12/77).

The Commission’s investigation showed that MLB’s market exit from commercial banking and transformation into a development bank meet the criteria of the Commission’s communication on banking restructuring during the crisis (see IP/08/1901, IP/09/1180, MEMO/09/350, IP/10/1636 and IP/11/1488).

In particular, the distortions of competition brought about by the aid are offset by the sale or wind-down of MLB’s commercial activities. Hence, MLB will no longer compete with commercial banks. Moreover, the state aid required for MLB’s transformation is lower than originally foreseen and MLB contributes to bearing the costs through the proceeds from the sale of its commercial activities.

As regards MLB’s transformation into a development bank, the Commission’s investigation is on-going. In particular, the future remit and organisational set-up of the development bank need to be clarified.

Background

MLB was established by the Latvian Government on 19 March 1993 as a state-owned bank. Before its transformation, it ranked eighth among banks operating in Latvia. MLB had a dual role, operating both as development and commercial bank. In recent years the bank has become the main channel for state-supported lending programmes in favour of SMEs, business start-ups, agriculture and rural areas and business-activities of socially vulnerable groups of the population.

In line with the 2011 transformation plan, which was agreed between Latvia, the IMF and the EU, MLB is being stripped of its commercial activities and transformed into a pure development bank. MLB’s commercial activities were split into bundles and sold off; the remaining parts, for which no buyers could be found, were put in wind-down.

Since 2009, MLB benefitted from various State support measures, including recapitalisations, liquidity support an guarantees, for a total amount of about LVL 225 million.

The non- confidential version of the decision will be made available under the case number SA.30704 in the State Aid Register on the Commission’scompetition website once any confidentiality issues have been resolved. New publications of state aid decisions are listed in the State Aid Weekly e-News.

Contacts :

Antoine Colombani (+32 2 297 45 13 – Twitter: @ECspokesAntoine )

Marisa Gonzalez Iglesias (+32 2 295 19 25)