PricewaterhouseCoopers (hereinafter - PWC) has announced the results of the due diligence on Parex banka's finances, taxes and IT as assigned by Parex banka's shareholders. Auditors' task was to specifically evaluate the situation at Parex banka (hereinafter - the Bank) on the takeover date. The report particularly emphasizes that PWC has not audited Bank's operations and financial situation after the date of appointment of the new Management Board of the Bank on 5 December 2008. All the risks indicated in the report had been identified by the new Management Board of the Bank during the first weeks of its activities and the prevention plan has been developed. Most of the issues falling under the terms of reference of the Board have already been solved. The report acknowledges that part of the risks have been entailed by both global and local economic crisis, which has had an impact on operations of all Latvian commercial banks and may not be considered exceptional and affecting Parex banka alone. However, the report displays several most important factors that have had an effect on the Bank over the period of time until 30 November 2008: Liquidity: The report indicates that in 2008 a risk of liquidity support in the form of additional deposits from the State Treasury existed in case of difference between the incoming money flow from loans and the outflow of deposits in line with the payment schedules. The State Treasury has provided support to the Bank in 2008 and currently the Bank is in negotiations with the syndicated lenders who, according to the existing agreements, are entitled to request the repayment of the loans granted to the Bank. The prior business model of the Bank was based on the availability of short-term resources allowing speedy growth and providing good profit. Historically the liquidity of the Bank was guaranteed by the security portfolio, which became practically nonmarketable and lost its value as a result of the global economic crisis. Inaccessibility of tradable instruments alongside with the decrease of deposits triggered the liquidity crunch of the Bank. The outflow of deposits has gradually declined compared to November and December 2008 as well as January 2009 compared to December 2008; Reserves for loans: According to the report, as at 30 November 2008, Bank's reserves for doubtful loans were insufficient; however, it is noted that since the new Board has taken office on 5 December 2008, the necessary reserves have been accurately analysed and accumulated. Additionally, the auditing firm Ernst & Young is working on Bank's financial report for 2008, which is expected to be completed on 31 March 2009 and will report the state of the Bank as at 31 December 2008. The additionally accumulated reserves demand the increase of Bank's capital, that will allow Bank to re-establish its status of a reliable partner of both customers and other banks; Dependence of loan repayment on the real estate market trends: Mortgage secured loans are a constitutive part of the loan portfolio. According to the Bank's policy, provided that the customer pays off the loan in due time and no amendments are made to the terms; no additional loan evaluation is required during the tenor of the loan. Thus, assessments in Bank's possession acquired at the time of granting the loan might not reflect accurate current value of collateral. It must be noted that the Bank requested co-funding from the client and the credits have been repaid in the negotiated terms; High concentration of customers outside European Union countries: a substantial part of borrowers and attracted deposits are from non-EU countries, which have also been heavily affected by the economic crisis. Due to the diversification of risks and greater profit potentialities the policy of the Bank till now envisaged active cooperation with the said customers. For instance, according to the financial report for 2007, as at 31 December 2007, 25% of Bank's liabilities (including deposits) and 16% of issued loans were related to non-EU countries. Taking into account that the network of Bank's branches outside Latvia providing services to private customers and small and medium-sized enterprises is not wide, the conclusion can be made that large corporate clients have formed a relatively high concentration of loans and deposits in the respective portfolios of the Bank. However, it must be noted that these concentration levels are in line with the requirements determined by the FCMC. About Parex banka: Being founded in 1992, Parex banka offers universal banking services throughout the Baltic region, the CIS and other European countries such as Germany, Switzerland and Sweden. Parex Group companies operate across the banking, finance, leasing, asset management and life insurance sectors. Parex banka is the only partner of American Express in Latvia and Lithuania, allowed to issue American Express credit cards. Since 05 December 2008 the State owned Mortgage and Land Bank of Latvia is the majority shareholder of Parex banka. Additional information: Indra Zinkevica Head of Corporate Communications and PR Parex banka Phone: +371 67778571 E-mail: pr@parex.lv