RIGA (Latvia) - THE Latvian government has effectively nationalised the country's second-largest bank, Parex Bank - acquiring a controlling 51 per cent stake for the symbolic sum of just a few dollars, Latvia's Prime Minister Ivars Godmanis said on Saturday.

'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 and not disturb the work of Parex Banka,' Mr Godmanis told reporters on Saturday evening, following a nine-hour marathon government session.

The prime minister said the decision to take-over Parex was in line with moves by other European Union countries to support their banks.

'It is necessary to do everything to avert disruptions of the bank and the financial system,' Mr Godmanis stressed.

The Finance and Capital Market Commission said the government would acquire the controlling interest in Parex Bank for a symbolic two lats (S$5.32932).

Mr Godmanis denied that similar action could face other banks operating in Latvia.

In a market dominated by Scandinavian banks, Parex Bank is Latvia's second largest bank by assets.

Once an economically vibrant 2004 EU newcomer, experts warn Latvia will fall deeper into recession next year.

The International Monetary Fund expects the Latvian economy to shrink by 2.2 per cent in 2009 from its prediction of a 0.9 per cent contraction this year.

Previously dubbed a 'Baltic EU Tiger,' the former Soviet Union republic's economy grew by 10.2 per cent in 2007. -- AFP