Riga - A government bailout of Latvia's largest indigenous bank, Parex Banka, was set to be finalized Monday after the European Commission (EC) signalled it would not block the deal.

Latvian Finance Ministry spokesperson Diana Berzina told Deutsche Presse-Agentur dpa that an "unofficial okay" had been received from the EC along with their comments on the deal.

She added that final confirmation from the EC was likely one or two days after the legal document was due to be signed in a closed meeting on Monday night.

Parex Banka is the second largest bank overall in the Baltic country. It posted profits of more than 12 million lats (22 million dollars) in the first nine months of 2008.

On Saturday night, Latvian Prime Minister Ivars Godmanis emerged from a lengthy meeting to announce, "the government of Latvia today made a decision that the state will become a majority stakeholder in Parex Banka to secure the stability of Latvia's financial system."

In two days of frantic deal-making since then, government and bankers alike have sought to play down the seriousness of Parex's situation in a bid to stop a run on the bank. That seems to have worked, with little evidence on Monday of account holders trying to withdraw their money.

Godmanis even banned state-owned companies and local government departments withdrawing funds from Parex on Monday as a demonstration of confidence.

The terms of the deal will see the Latvian government take a majority stake in Parex at an initial cost of 200 million lats (360 million dollars).

Parex's two founders and main shareholders, Valery Kargin and Viktor Krasovitsky, have agreed to sell their stakes for the token amount of 1 lat each, though they will also have first option on buying back the shares after twelve months.

With the deal signed, Parex will become a subsidiary of state-owned Hipoteku Banka with Hipoteku chairman Inesis Feiferis taking over the reins as president of Parex.

Finance Ministry official Martins Bicevskis will become chairman of the Parex board of governors.

Speaking to dpa Sunday, Feiferis said the deal did not constitute a merger as the intention was to sell Parex to a "strategic investor" at some point in the future. He said Parex was a viable and profitable business with just one real problem - liquidity - which the partial nationalization would solve.

Bicevskis stressed the Latvian government's action was the same as similar actions by governments across Europe and said it was unlikely to need to intervene in a similar way with any other local banks.

"We do not think we will be in this situation again. We have put things back together and we are strong," he said. (dpa)