Brussels - The European Union's executive on Tuesday gave the green light to a Latvian state bail-out of the country's largest locally-based bank, Parex Banka, saying that it was "necessary to avoid a serious disturbance in the Latvian economy."

The 200-million-lats (350-million-dollar) bail-out is "limited in time and scope to the minimum necessary to restore the financing, require an adequate fee level and provide safeguards to minimize distortions of competition," a press release from the European Commission said.

The decision clears the Latvian state to become a majority stakeholder in Parex for the next six months - a period of time which officials hope will be sufficient to overcome the liquidity problems which the bank suffered as part of the global credit squeeze.

Parex Banka, which is the second-largest bank in Latvia but the largest local operator, posted profits of more than 12 million lats (22 million dollars) in the first nine months of
2008, but it suffered severely in the credit crunch, running into a financial crisis in the first week of November.

On November 8, the Latvian government announced that it would take over the bank to prevent a crisis of confidence in the former Soviet state, which still carries memories of a massive banking meltdown in the mid-1990s.

On November 10, Latvian officials said that the commission had given provisional approval to the bail-out, but that formal details were still to be finalized. (dpa)