Riga - State bail-outs of financial institutions have become almost commonplace in recent months, but still cause a mixture of surprise, fear and sometimes even panic when they are suddenly revealed.

Surprise and fear certainly featured when the Latvian government announced the effective nationalization of Parex Banka, the country's largest indigenous financial institution, on the weekend of November 8-9, but panic was largely avoided in the days that followed - except among account holders with bad memories of previous Baltic bank collapses in the early days of independence from the Soviet Union.

The Latvian government now finds itself in control of Parex, having bought a controlling stake from the bank's wealthy founders, Valery Kargin and Viktor Krasovitsky for the token sum of 1 lat (1.80 dollars) each.

The three Baltic states of Estonia, Latvia and Lithuania are all experiencing sharp economic downturns. Estonia and Latvia are already in recession with Lithuania looking likely to follow, and all three countries operate their own currencies, respectively the kroon, lat and lita, which look increasingly vulnerable despite being pegged to the euro.

As a result, speculation is rife among Baltic economy-watchers about which banks, if any, will follow in Parex's footsteps and apply for state support.

Estonia seems safest of the three Baltic states. While it does possess some homegrown investment banks, hardly any of its retail banking sector is eligible for state support.

According to Neil Shearing of London-based Capital Economics: "Almost all of the Estonian banking sector and just over 90 per cent of the Lithuanian banking sector is owned by foreign institutions. By contrast, only two-thirds of the Latvian banking sector is foreign- owned. Of the third that remains in domestic hands, Parex accounts for well over half."

So the problems presented by Parex should be the biggest ones out there - unlike the situation in countries such as the US and Britain where progressively larger institutions required progressively larger bail-outs.

Provided Scandinavian banks including Swedbank, SEB and Nordea don't decide to leave, the banking sector should be safe. On the other hand, if the Vikings do sail back home across the Baltic Sea, they would leave chaos in their wake.

In Latvia, officials say further bail-outs are "not expected," but with 26 banks officially registered in the country some degree of future consolidation might be seen.

But most of those banks are small-scale "boutique" banks or business banks more worried about the general economic downturn than any past gambles on the financial markets coming back to haunt them.

One of the larger remaining independents is Latvijas Krajbanka, but a spokesperson told Deutsche Presse-Agentur dpa there was nothing to worry about.

"The situations of Parex Banka and Latvijas Krajbanka are very different. We have evolved long-term strong relations with clients that are loyal to Krajbanka and its services. There is no trend of notable withdrawals or anything like that," they said.

On Wednesday Krajbanka announced it intended to raise 5 million lats (8.9 million dollars) by means of a new share issue.

Krajbanka is 83 per cent owned by another of the remaining regional players, Lithuania's Bankas Snoras, which has itself been keen to raise capital recently.

At the end of October Snoras' authorized capital was raised from 92 million to 149 million million dollars (a rise of 62 per cent) by issuing millions of shares. A further 36 million dollars was used from the bank's capital reserve and 21 million dollars from 2007's undistributed profit.

Such financial prudence makes an earlier decision to become the largest shareholder in Dutch sports car maker Spyker look like a potentially costly vanity project.

It was noticeable that on November 10, the first day the Baltic stock markets had a chance to respond to the Parex nationalization, Snoras shed more than 11 per cent of its value and followed that up with similarly-sized drops on Tuesday and Wednesday.

But Naglis Stancikas of Snoras' investment business division told dpa the bank "does not intend to ask for government assistance from the Lithuanian government" and is not planning to execute other capital increase procedures this year.

Another Lithuanian bank, Ukio Bankas experienced big falls in its share price in recent days, and will likely be added to investors' watchlists along with Latvia's privately-owned Aizkraukles Banka, which has a two-man ownership structure similar to Parex's former setup.

Lithuania's Siauliu Bankas is another bank making a point of increasing its capital markedly, but its share price has suffered less than some competitors because it already has the muscle of the European Bank for Reconstruction and Development (EBRD) behind it as a major shareholder.

So while Neil Shearing says further government-backed bank rescues in the region are "very possible" they are unlikely to be as large as the Parex bailout unless some nasty new surprises turn up on the balance sheets of Baltic banks. (dpa)