The goal of credit institution supervision is to monitor the compliance of credit institutions with the standards of safe and reliable banking as set by the laws and legislation of the Bank of Lithuania and recommended in International Accounting Standards and by the Basle Committee on Banking Supervision.
Prudential Requirements and Ratios
The Law of the Republic of Lithuania on Banks establishes the prudential requirements to banks that are compulsory to all commercial banks in Lithuania. The specific ratios and calculation methodologies are established by the Bank of Lithuania. The following prudential requirements have been established: capital adequacy, liquidity, maximum open position in foreign currency and precious metals, maximum exposure and large exposure. The Bank of Lithuania may issue legislation establishing other requirements that do not contradict the recommendations of the Basle Committee on Banking Supervision and European Union directives.
- The capital adequacy requirement specifies that the ratio of eligible bank capital and risk-weighted assets and off-balance sheet liabilities may not be less than 8 per cent.
- The liquidity ration specifies that the ratio of a bank’s liquid assets and current liabilities may not be lower than 30 per cent.
- The maximum open position in foreign currency and precious metals: the overall open position in foreign currency (Euro position is excluded) may not exceed 25 per cent of bank capital, and the ratio of the open position in one currency (Euro position is excluded) or precious metals may not exceed 15 per cent of bank capital.
- Maximum exposure requirement. Amount of loans to one borrower may not exceed 25 per cent of bank capital. Amount of loans granted by the bank to its parent enterprise, other subsidiaries of the parent enterprise or of the bank, may not exceed 75 per cent of bank capital for each borrower, if the Bank of Lithuania carries out consolidated supervision of the financial group as a whole. If the Bank of Lithuania does not carry out consolidated supervision of the financial group as a whole, the loan amount granted by the bank to its parent enterprise, other subsidiaries of the parent enterprise or of the bank, may not exceed 20 per cent of bank capital for each borrower.
- Large exposure ratio means that the total amount of large loans may not exceed 800 per cent of bank capital.
- In addition, the Law on Banks requires that total bank investment in the shares or capital of other companies may not exceed 60 per cent of bank capital, while investment in an individual company is limited to 15 per cent of bank capital. These provisions are not applicable to investment in the shares and capital of such companies that are attributed to the type of enterprises engaged in credit and financial activities in the laws of the Republic of Lithuania and the legislation of the Bank of Lithuania. Banks are prohibited from acquiring shares in a company that holds a controlling interest in the bank, or become a co-owner of such a company. A bank’s core capital may not be lower than the minimum established by the Bank of Lithuania (at present, EUR 5 million in LTL equivalent).
