Meeting of the Board of the Bank of Lithuania

1. The Board reviewed the report on the results of the HERMIS Bank examination carried out on 11 October through 17 December 1999.

The examination focused on the main fields of the Bank’s operations, including management, asset quality, capital, profitability and assets and liabilities management as of 1 October 1999 and during the period since the last examination (1 October 1998) until 17 December 1999.

It was noted that important changes took place during the examination period. The reorganisation of the Bank by merging HERMIS Bank with Vilniaus Bank was started, leading to the changes in bank management. The Board stated that the annual budget targets set by the shareholders meeting were not met; however, the management of the Bank did not take the necessary steps to ensure performance under budget targets. The examination also discovered that specific provisions were insufficient.

2. In the light of the results of Vilniaus Bank examination carried out on 4 October through 24 December 1999, the Board of the BoL instructed Vilniaus Bank to remove all drawbacks in its operations by 1 April 2000 and report to the Bank of Lithuania.

The examination focused on the main fields of the Bank’s operations, including management, asset quality, capital, profitability and assets and liabilities management as of 1 October 1999 and during the period since the last examination (1 May 1998) until 1 October 1999 (important changes that took place in October through December 1999 were taken into account).

The examination established that the bank council controlled the operations of the Bank, analysed its financial results and focused on the strategic issues: strengthening of bank capital and investments into HERMIS Bank. As crediting was among the main spheres of activity, the Board of the Bank focused on the formation of crediting policy and management of credit risk. However, the Bank neglected the development of bank accounting procedures, co-ordination of accounting principles of subsidiary companies and internal control. The preparation of statements for banking supervision was not fully automated.

3. The Board granted permission to the Nordic Development Bank to acquire and/or manage from 1/5 to 1/3 of the shares in the Lithuanian Development Bank.

The decision was based on the legal provisions requiring such permission to be issued by the BoL to the shareholders of the Lithuanian Development Bank which is to start operating as a commercial bank.

The Nordic Investment Bank currently owns 32 ordinary shares of the Lithuanian Development Bank (29.36 percent of the share capital).

4. The Board was presented the review of the Government securities (GS) market in the fourth quarter of 1999.

During the review period, the BoL held 16 GS auctions (26 in Q3 1999). Two GS auctions were cancelled as the bids exceeded the maximum yield accepted by the Ministry of Finance. In four auctions all GS were sold, while ten issues of GS were not sold fully.

The investors were offered treasury bills for the LTL 630 million (LTL 1 400 million in Q3). The general demand over the quarter was LTL 253.2 million, which was 59.8 percent less than the amount issued (during the previous quarter, LTL 1 613.5 million, 15.3 percent less than issued). LTL 182.6 million of T-bills were sold at face value (during Q3, LTL 1 154.9 million of T-bills and LTL 2.2 million of Government bonds), which was down 84.5 percent on Q3. LTL 447.4 million GS (71.0 percent of the planned amount) were not sold (in Q3, LTL 242.9, or 17.3 percent, respectively).

24 issues of GS for LTL 996.7 million were repurchased during the quarter. Government debt to investors changed over the period from LTL 2 011.2 million to LTL 1 198.6 million (including GS sold for LTL 1.5 million face value at the end of Q3 and paid in Q4), down by LTL 812.6 million (40.4 percent).

The yield on T-bills continued to grow in Q4. Average yield on 1-month maturity GS in Q4 1999 went up to 13.771 percent (from 8.889 percent in Q3), 3-month maturity ? to 14.85 percent (9.856 percent in Q3), and 6-month maturity ? up to 16.132 percent (13.495 percent in Q3). The average annual yield on GS sold over the fourth quarter went up to 15.2 percent (12.1 percent in Q3).

Secondary turnover of T-bills on the National Stock Exchange of Lithuania in Q4 was LTL 192.4 million (70.3 percent of Q3 turnover) and accounted for 18.2 percent of the total turnover in 1999. Trade in GS with 31 to 90 days before maturity accounted for the largest part of Q4 turnover (40.5 percent).

5. The Board granted permission to the European Bank for Reconstruction and Development (EBRD) to acquire and/or manage from 1/10 to 1/5 of shares of the Lithuanian Agricultural Bank (LAB).

Following the Government resolution of 7 July 1999 on the privatisation of the LAB by exchanging the its shares owned by the Government into the shares of the Lithuanian Development Bank owned by the EBRD, the EBRD will acquire 123 127, LTL 95 par value, ordinary shares of the LAB for the total amount of LTL 11.7 million, which accounts for 11.4 percent of the Bank’s share capital.