The ECB deemed Latvia-based AS PNB Banka as failing or likely to fail, following an onsite inspection that found significant capital shortfalls at the lender.

PNB Banka saw a significant deterioration of its capital levels due to the need for additional impairments of its assets, the central bank said, noting that the bank's assets were less than its liabilities and that it was unable to satisfy requirements for continuing authorization.

The bank, which has been in breach of capital requirements since 2017, was also unable to provide assurances that it could comply with capital requirements in the near future, the ECB said.

PNB Banka, Latvia's sixth-largest bank with total assets of €550 million, has been under the direct supervision of the ECB since April at the request of the country's Financial Capital and Markets Commission.

Following its assessment, the ECB said it informed the EU's Single Resolution Board, which decided that a resolution of PNB Banka was not necessary as the lender's functions are not critical and that its failure is unlikely to lead to significant adverse effects on financial stability in Latvia and other EU member states.

In July, PNB Banka's majority shareholder, Grigory Guselnikov, agreed to sell his stake in the bank to a group of U.S. and European investors.